By JAMES ANYANZWA

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Regional lender Equity Bank is looking for investment opportunities in Ethiopia as part of its push to become a Pan-African bank.

Chief executive James Mwangi told The EastAfrican that the lender with a market capitalisation of Ksh132 billion ($1.32 billion) has restarted its continental expansion plan, which it shelved in 2016, with the focus now on the Horn of Africa, where it hopes to acquire an existing bank.

Mr Mwangi said Equity is keen on economic reforms in Ethiopia as it searches for opportunities for an acquisition as an entry plan.

“We are focused on Ethiopia because that market could possibility open in 2020 or 2021. The entry strategy is through acquisition given that it is a big market. In big markets, you enter by acquisition,” Mr Mwangi said.

Equity’s interest in Ethiopia, Africa’s second-most populous nation with more than 100 million people, is informed by a wave of reforms that Prime Minister Abiy Ahmed has put in place to open up an economy that has, for long, been under state control.

Ethiopia has 18 licensed commercial banks, of which Commercial Bank of Ethiopia and Development Bank of Ethiopia are state-owned.

In 2015, the National Bank of Ethiopia increased the minimum paid-up capital for banks from 500 million birr ($17 million) to 2 billion birr ($69 million). Banks are expected to comply by June 2020.

It is argued that 10 small banks holding paid-up capital ranging from 198 million birr ($6.85 million) to 865 million birr ($30 million) will find it difficult to significantly increase their capital buffer every year to the requisite 2 billion birr ($69 million), leaving them with the option of mergers or acquisition.

Restrictions

But Ethiopia has had restrictions in select sectors of the economy, notably financial services, retail and telecommunications.

The removal of these hurdles would allow seamless integration, cost reduction, investment expansion and risk-sharing in financial services across the region.

In 2016, Ethiopian MPs made a landmark decision to relax the restrictions on the licensing of foreign financial institutions to operate in the country, presenting a huge growth opportunity both for both regional and global banks.
As of mid-last year, foreign banks were still not allowed to provide financial services in Ethiopia and the market remained closed to foreign retail banks.

Ethiopia has allowed some foreign banks to open liaison offices in Addis to facilitate credit from their countries of origin. These are Kenya’s KCB and CFC Stanbic, alongside Chinese, German, Turkish and South African lenders.

Foreign investors see a ray of hope as the government pursues broad economic reforms to liberalise the financial sector.

Kenyan banks are seeking opportunities in financial services inclusion, to replicate successful banking models such as mobile and agency banking in the Ethiopian market.

In 2008, Equity made its first cross-border expansion by acquiring Microfinance Company of Uganda Ltd at an estimated $16.6 million.

Its latest acquisition was the Congolese ProCredit Bank at $34 million, giving it presence in the mineral-rich country in 2015.

In 2015, Equity shareholders approved a Ksh20 billion ($200 million) new capital injection to drive the lender’s ambitious expansion, but in early 2016 the bank’s board suspended the programme to consolidate its regional business and restructure underperforming subsidiaries into moneymaking ventures.

All of Equity’s regional subsidiaries, save for Tanzania, are now profitable. Last year, the subsidiaries contributed 15 per cent of the bank’s overall profitability which grew by five per cent to Ksh19.69 billion ($196.9 million) from Ksh18.86 billion ($188.6 million) in 2017.

Although Equity Bank had hoped to enter Ethiopia and Burundi by the end of 2016, the plan was scuttled both by the suspension and Ethiopia’s legal framework, which locked out foreign-owned banks from its market.

International lenders opted to enter the economy through representative offices.

All of Equity’s regional subsidiaries, save for Tanzania, have realised profit.

Last year, the subsidiaries contributed 15 per cent of the bank’s overall profitability which grew by five per cent to Ksh19.69 billion ($196.9 million) from Ksh18.86 billion ($188.6 million) in 2017.