Equity freezes regional expansion plans to boost existing markets

Thursday March 10 2016

Equity group chief executive James Mwangi. PHOTO | FILE

Equity group chief executive James Mwangi. PHOTO | FILE 

By GEORGE NGIGI, [email protected]

Equity Bank has shelved its regional expansion plans announced last year with the management saying it was instead reinvesting in existing markets.

Kenya's largest bank by customers had raised $197 million (Ksh20 billion) from shareholders for the plan which saw it enter the Democratic Republic of Congo and also targeted entry into Burundi and Ethiopia by end of this year.

“This year we are not going to any new market but instead we want to mine existing subsidiaries to contribute at least 30 per cent of assets and hopefully 15 per cent of profits,” said the group chief executive James Mwangi.

Equity disclosed it had set aside $100 million (Ksh10 billion) to enter the Ethiopian market but said it would only do so as a fully licensed lender and not through a representative office.

Ethiopia’s legal framework locks out foreign-owned banks from its market with international lenders opting to enter the economy through representative offices.

“We believe Ethiopia will open next year—we don’t want a representative or liaison office; we have been given those two but have declined because we want a full license because that’s the way we feel we can have the desired impact,” said Mr Mwangi.

Two Kenyan lenders — KCB, which is the country’s largest bank by asset base, and CFC Stanbic — opened representative offices in Ethiopia last year.

Mr Mwangi disclosed the lender pumped additional capital in its regional subsidiaries to boost their performance.

He said the bank will inject $20 million (Ksh2 billion) in its Uganda operations and an additional $25 million (Ksh2.5 billion) in the Democratic Republic of Congo.

Equity invested an additional $20 million (Ksh2 billion) in Tanzania and $13 million (Ksh1.3 billion) in Rwanda.

“Increasing capital in the region means we can create more wealth with the increase in Tanzania than going to Botswana,” said Mr Mwangi.
Equity has operations in Uganda, Rwanda, Tanzania, South Sudan and the Democratic Republic of Congo.

It entered through the acquisition of ProCredit Bank in a venture that cost it $34.5 million (Ksh3.5 billion) inclusive of share swaps.

Since the entry it has expanded its branch network with 9 new outlets last year and plans to open 11 new ones this year.

Under the expansion plan Equity was to additionally venture southwards to Mozambique, Malawi, Zambia and Zimbabwe after its entry in Burundi and Ethiopia.

The bank was then to turn to West Africa after five years, eyeing Nigeria, Ghana and Cameroon.

Equity had said it planned to make acquisitions in three countries with the rest being new investments.

Shareholders of the bank approved the expansion plan during last year’s annual general meeting capping the cash to be spent in each new investment at Ksh10 billion ($100 million).

The regional subsidiaries of Equity contributed six per cent to the group profit with Tanzania and South Sudan being the largest sources, each posting Sh400 million before tax.

Rwanda and Uganda reported $3 million (Ksh300 million) each while DRC contributed $2 million (Ksh200 million). Uganda recorded the fastest growth of 138 per cent followed by Tanzania at 118 per cent.