By JAMES ANYANZWA

More by this Author

Egyptian lender, Commercial International Bank (CIB), is reviewing its growth plan for Kenya after recording $1.22 million in impairment losses in a Kenyan subsidiary on what it describes as “economic variation” in the operating environment which has gone against the unit’s pre-acquisition assumptions.

CIB, the largest private lender by assets, says in its 2023 report that the macroeconomic assumptions and business plans which it made at the time of acquiring Kenya’s Mayfair Bank in 2020 have been impacted by the challenging economic environment.

Policy tightening

This include the continuous increase in interest rates by the central bank primarily driven by the government’s plan of monetary policy tightening to rein in inflation and exchange rate depreciation which is posing a challenge for banks through rise in bad debts and increased costs of funds.

Read: Kenya’s top banks take up $4.7bn in fresh capital

CIB is therefore reviewing its growth strategy for the country and restructuring its management team to implement the new plan, which includes hiring a highly skilled and experienced sales team to grow the share of its customer accounts and savings accounts in the deposit base from 19.7 percent to 35 percent.

“Stemming from the prudent risk management culture for which CIB is known, management decided in 3Q23(third quarter) to take an accounting impairment on the Bank’s Kenyan investment, derived by extreme variations in the macroeconomic assumptions and business plans that were made at the time of the acquisition in 2020,” the bank says.

“Even with such a conservative approach, Management remains confident that the underlying fundamentals of the Kenyan investment remain valid. As such, measures were taken to weather these economic variations, the strategy was revamped, and key management personnel were recalibrated to implement the new strategy.”

A springboard

CIB entered Kenya in April 2020, with acquisition of a 51 percent stake in Mayfair Bank at a cost of $35 million, and in January 2023 it completed the acquisition of the remaining shares (49 percent) for $40 million, viewing the country as a springboard for its operations to the rest of the African countries, and particularly in East Africa.

Audited financial statements show the book value (assets-liabilities) of the Kenyan subsidiary declined by EGP 58.03 million ($1.22 million) to EGP835.91 million ($17.55 million) on December 31, 2023, from EGP 893.95 million ($18.77 million) in 2022.

The decline in the Kenya subsidiary’s book value occurred after CIB group fully took ownership of the Kenyan unit.

“The cornerstone of our East African expansion strategy, CIB Kenya focuses on trade finance activities and digital banking solutions, particularly growing the Egypt-Kenya trade corridor, enabling large Egyptian corporates and Egyptian SMEs to operate in the hub of Eastern Africa,” the lender says.

Read: Global lenders want a piece of East Africa’s retail banking market

“Cementing its presence in Africa, CIB Kenya Limited (formerly Mayfair-CIB) continued to serve as a gateway to Africa for CIB and the Egyptian market, despite the challenging market conditions that predominated the year.”

CIB Egypt anchored its regional presence with the acquisition of the remaining 49 percent stake in Mayfair CIB Bank Ltd, making it the first fully owned subsidiary of CIB beyond Egypt.

CIB’s strategy for its Kenyan subsidiary focuses on trade finance activities and digital banking solutions, particularly growing the Egypt-Kenya trade corridor, enabling large Egyptian corporates and Egyptian SMEs to operate in the hub of Eastern Africa.

The bank’s niche market is large and medium‐sized corporates and high networth investors.

In 2023, CIB Kenya reported a 92 percent decline in profit to Ksh 35.5 million ($27,307.69), from Ksh445 million ($3.42 million) in 2022.
Its net interest income for the year 2023 closed at Ksh 775 million ($5.96 million) from Ksh 773 million ($5.94 million) while non-interest income grew by 58 percent to Ksh 136 million ($1.04 million) from Ksh 86 million ($661,538.46) in 2022.

“However, despite these promising measures, CIB Kenya acknowledges that they have fallen short of their loan growth targets. The continuous increase in lending rates, primarily driven by the government’s constriction of market liquidity, poses a challenge for banks.

With government paper yielding higher rates, 15 percent on One-Year Treasury-bills, banks are forced to raise their deposit ratios to compete. This results in a high cost of funds, which subsequently leads to high lending rates,” the bank says.

“Nevertheless, CIB Kenya remains confident that it will continue to deliver bottom-line results in line with its budget.”

CIB which is listed on the Egyptian Stock Exchange and London Stock Exchange (LSE), says its Kenyan operations are challenging as manifested through the non-performing loans (NPLs) due to macroeconomic factors that are exogenous to the bank and that have affected the ability of customers to repay their loan obligations.”