KCB’s Congo subsidiary shines in tough first quarter

Saturday May 27 2023
Trust Merchant Bank CEO Oliver Meisenberg and KCB Chairman Andrew Kairu

Trust Merchant Bank SA CEO Oliver Meisenberg (L) and KCB Group Chairman Andrew Kairu during an event in Nairobi, Kenya on December 19, 2022. PHOTO | DIANA NGILA | NMG


Trust Merchant Bank (TMB), which KCB Group acquired in mid-December last year, posted Ksh1.9 billion ($13.7 million) profit in quarter ended March, accounting for 20 percent of the bank’s total proceeds for the period.

This is despite KCB’s profit for the first quarter dipping 2.9 percent from Ksh9.79 billion ($70.8 million) in the same period last year to Ksh9.5 billion ($68.7 million), which was mainly due to a drop in its Kenyan units’ earnings.

The lender’s largest subsidiary, KCB Kenya’s post-tax profit dropped 22 percent to $46.3 million, while the National Bank of Kenya’s proceeds dropped 70 percent, due to increased expenses and provisions for non-performing loans.

KCB’s group finance director Lawrence Kimathi told The EastAfrican that TMB has been “a positive contributor” to the lender’s profit in the first quarter, and that the slight drop in total profits is entirely due to the difficult operating environment in Kenya.

“Quarter One has been very difficult for the Kenyan economy. There was a lot of tightness of liquidity in the market, which significantly increased the cost of mobilising deposits for us,” he said.

The general drop in profit was also driven by a rise in the lender’s interest and operating expenses, both of which rose at higher rates than the corresponding rise in the same period.


Read: KCB, Equity raise loan reserves

Interest expenses nearly doubled to Ksh11.6 billion ($83.9 million), pushed by a rise in interest paid on deposits and placement from banking institutions, especially in Kenya. Its operating costs rose by 53 percent to $166 million on increased staff costs — due to the consolidation of TMB — and a doubling of the costs of loan loss provision, amidst a surge in non-performing loans (NPLs).

Its revenues, on the other hand, rose only by 27 percent to $267 million, mostly driven by TMB’s earnings, which have been reported for the first time in the regional bank’s reporting cycle.

Mr Kimathi said KCB group’s acquisition of TMB has enabled the DRC unit to be more profitable than it already was because they have given them “the ability to use the big balance sheet of the group... It is now able to syndicate its balance sheet with KCB Kenya and keep the customers it was initially unable to lend to because their balance sheet was too small,” he said.

“The first quarter performance highlights the resilience of the business across the corporate and retail franchises. The regional businesses performed well, giving credence to the regional expansion strategy,” said KCB Group chief executive Paul Russo.

Read: KCB completes DRC bank acquisition

DRC has lately been the second most profitable market outside Kenya, after Rwanda, for the two Kenyan banks — KCB and Equity. Last year, total profits for Kenyan lenders from the DRC market more than doubled to $70.8 million.

KCB group chairman Andrew Kairu said the lender’s growth will no longer be driven by its Kenyan market but by its continued expansion in the region and growth of its subsidiaries.

The bank is, however, upbeat that it will shake off operational headwinds in Kenya and post a rise in profits at the end of the year, despite the slow start.

Read: NCBA eyes deals for M-Shwari entry into DRC, Ethiopia

“We’ve seen an improvement in May, we’re expecting that it will continue moving forward, in terms of liquidity being availed,” said Mr Kimathi.

“We are optimistic about improved performance in the remaining quarters of the year despite the tough environment that has impacted on customers and the economy as a whole,” remarked Kairu.