KCB absorbs DRC entry costs, posts 19.5pc profit on interest income

Tuesday March 21 2023
KCB branch

Kenya Commercial Bank branch along Mama Ngina Street in Nairobi County, Kenya. PHOTO | DENNIS ONSONGO | NMG


KCB Bank Group’s net profit for the year ended December 2022 grew by 19.5 percent to $314 million in spite of increased expenses driven by its acquisition of the Trust Merchant Bank (TMB) in the Democratic Republic of Congo (DRC) late last year.

The regional bank’s revenues for the period increased by 19.6 percent to more than $1 billion, supported by growth in interest income, service and lending fees, and foreign exchange earnings, which nearly doubled to $85.5 million.

This is despite the lender's 24 percent rise in costs, which was primarily due to its expenditure in the acquisition of majority stake in the Lubumbashi-based TMB last December, and expenses incurred in amalgamation of Rwanda’s Bank Populaire du Rwanda (BPR) in 2021.


Rwanda's Populaire du Rwanda Bank stand at a trade fair in Kigali. PHOTO | NMG

In the period, KCB’s costs amounted to $457 million, up from $367 million in 2021, with the TMB acquisition estimated to have cost at least $138 million, coming hot on the heels of the BPR takeover.

KCB’s Group Chief Finance Officer Lawrence Kimathi said while the bank’s entry into DRC raised its total costs, TMB’s significant contribution to the group’s asset base – which increased by 36 percent to $11.9 billion – offset the impact.


With combined assets worth $1.6 billion, TMB toppled the National Bank of Kenya (NBK) as KCB’s second-largest subsidiary, accounting for about 13.5 percent of the group’s total assets.

KCB Group CEO Paul Russo said he is confident that the bank’s entry into DRC will not weigh down its profits going forward, as it wasn’t a greenfield investment like their previous expansion into Uganda, Tanzania and Burundi.

Read: Paul Russo to replace KCB boss Joshua Oigara

“It took us years before we started making profit in these three countries, but we learnt our lesson and that’s why we didn’t make the same mistake when entering Rwanda and DRC,” Russo told The EastAfrican.

“We just acquired TMD the other day and it has already made a lift on our numbers. When we bring our expertise together with that of TMB’s, the results will be completely different from what we saw in Uganda, Tanzania, and Burundi.” he added.

Paul Russo, the managing director of National Bank of Kenya.

KCB Group CEO Paul Russo. PHOTO | NMG

Subsidiary performance

In the financial year ended December 2022, each of its subsidiaries recorded a growth in profit before tax, with the most recently acquired BPR contributing the most, having increased its pre-tax earnings by 137 percent to $28.7 million.

KCB Tanzania’s profit before tax was $12.2 million, South Sudan subsidiary ($9.6 million), NBK ($7.9 million), Burundi ($6.4 million) and Uganda $6.1 million gross profit.

Russo said that even as the lender seeks to enter the Ethiopian market as soon as laws change to allow foreign banks, KCB will follow a similar route of “partnering” rather than setting up a subsidiary, to avoid making start-up losses.

He noted that entering new markets can be complex, and setting up a subsidiary often ends up becoming costlier than acquiring or partnering with an existing player in the foreign market.

Notably, Safaricom, Kenya’s leading telecommunications firm, recorded a 10 percent drop in net profits in the first half of its current financial year; owing to start-up losses made by its Ethiopian subsidiary started last year, which gobbled up over $48 million in expenses.

Read: Ethiopia eyes $150m M-Pesa entry fee

Dividend slash

The high cost of acquiring TMB pushed KCB to lower its total dividend pay-out to shareholders by over 30 percent. The board recommended a final dividend of Ksh1 ($0.0077), bringing the total dividend to Ksh2 ($0.015).


KCB Group Chairman Andrew Kairu and TMB Chairman Oliver Meisenberg. PHOTO | NMG

This translates into a total of $49.6 million to shareholders, a 33.3 percent drop from the $74.3 million paid out in 2021.

This year, KCB expects to post a better performance buoyed by an improved operating environment across the region as Gross Domestic Product (GDP) growth rates are expected to rebound and business activity to resurge.

KCB Group Chairman Andrew Kairu said the lender is bullish about 2023 and would harness as well as maximize all the opportunities available to them across the various markets. Last year, all its top three income sources recorded double digit growth.

Income earned from foreign exchange trading recorded the most growth of 69.2 percent in a period marked by a persistent dollar shortage.

However, Russo said that increased forex earnings were due to an expansion of their market share.

“For us, it’s been down to the number of money transfer services that we’ve on boarded, mostly for diaspora movement of money. That’s basically what has increased our forex earnings in the period,” he told The EastAfrican.