Kenya banks cashing in on cross-border regional units to prop bottom-line

Sunday November 26 2023
Kenya’s KCB Bank

Customers being served at a KCB branch in Nairobi, Kenya. PHOTO | SIMON MAINA | AFP


Kenya’s largest retail banks are relying on regional subsidiaries to prop up weakening profit numbers, whose growth has slowed to single digit in the past nine months, signalling a tough operating environment especially in the local market.

KCB, Equity and Co-operative, which jointly serve close to 60 million customers through a network of 1,151 branches in the region, have seen their average growth in net profit decelerate.

KCB, which posted a 1.74 percent decline in profit in the nine months to September 30, and Equity Bank, which recorded a five percent growth in net earnings in the same period, said their performance was lifted by the cross-border businesses.

Read: Kenya banks book $100m forex gain from foreign units

Branch network

The operating environment in Kenya has proved to be tough, blamed on increased taxes, high inflation, high interest rate and a weakening shilling exchange rate, which have colluded to increase the overall cost of living and the cost of doing business in East Africa’s largest economy.


Equity’s operations in Kenya reported a 20 percent drop in earnings while that of KCB produced an 8.78 percent decline in net profit.

“While we continue to operate in a tough operating environment, our subsidiaries have shown great resilience,” KCB Group chairman Joseph Kinyua said.

KCB Group’s net profit declined by 1.74 percent to Ksh29.92 billion ($196.84 million), from Ksh30.45 billion ($200.32 million) during the period under review.

Read: KCB’s Congo subsidiary shines in tough first quarter

But the contributions of Group businesses (excluding KCB Bank Kenya) to the overall profitability was up 27.9 percent, from 16.4 percent, as investments in regional businesses continue to pay off.

KCB has regional operations in Uganda, Tanzania, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo (DRC).

National Bank of Kenya (NBK), which was acquired by KCB Group in 2019, posted a net loss of Ksh3.05 billion ($20.06 million) from a net profit of Ksh807.06 million ($5.3 million).

Equity Group reported a five percent increase in net profit during the nine months period to September 30, with half of the revenues coming from the cross-border businesses.

Unaudited numbers show double digit growth from subsidiaries lifting Equity’s net profit to Ksh36.2 billion ($238.15 million) from Ksh34.37 billion ($226.18 million) , with the growth from businesses outside Kenya, excluding South Sudan helping to cushion the lender from a 20 percent dip in net profit from the Kenyan operations.

The lender has cross-border operations in Uganda, Tanzania, Rwanda, South Sudan, and DRC.

For a long time, Equity Bank Kenya has remained Equity Group’s single largest profit contributor.

Read: Equity Bank in policy shift to optimise efficiency

In 2022, subsidiaries contributed Ksh11 billion ($72.36 million), equivalent to 31 percent of the Equity Group’s net profit, but this has now risen to Ksh18.5 billion ($121.71 million), equivalent to 53.5 percent of the net earnings during the period under review.

“The long-term strategic pursuit of geographical expansion and diversification continues to deliver impressive results,” says James Mwangi, Group Managing Director and CEO.

Significant progress

Co-op Bank’s net profit increased by 7.6 percent to Ksh18.39 billion ($120.98 million) in the nine months to September 30, from Ksh17.09 billion ($112.43 million) in the same period in 2022, with the bulk of the revenues (99.76 percent) coming from the Kenyan operations on account of increased interest and non-interest income, the bank said.

Last year, Co-Op Bank’s net earnings grew by 38 percent compared with Equity’s 28 percent and KCB’s 21.4 percent.

The lender, which is 64.6 percent owned by the cooperative movement, is also making significant progress in the South Sudan market after its subsidiary in Juba reversed a loss-making trend to post a profit before tax of Ksh246.9 million ($1.62 million) in the nine months to September 30, according to the unaudited financial statements.

Read: Rwanda, DRC most profitable units for KCB, Equity banks

This translates into a monetary gain of Ksh43.5 million ($286,184.21), taking into account the existing hyperinflation in the country caused by the devaluation of the South Sudanese Pound (SSP).

“The strong performance is in line with the Group’s strategic focus on sustainable growth, resilience and agility,” said Gideon Muriuki, the Group CEO.

According to the Co-op Bank, its diverse product and service offerings, capacity to properly manage foreign exchange position and its close collaboration with donor agencies and non-governmental organisations have elevated the lender to a pole position to generate revenues from a growing pool of businesses in Juba, which have become loyal bank customers.

During the same period last year, Co-op’s subsidiary in South Sudan reported a profit of Ksh190 million ($1.25 million) from a loss of Ksh104 million ($684,210.52) in the same period in 2021.

Co-op Bank started operations in South Sudan in September 2013 through a joint venture with the Government of South Sudan, where the bank and the government own 51 percent and 49 percent of the shares respectively.

The lender which runs four branches in Juba has also embarked on an aggressive local (Kenya) expansion drive to shore up its deposits and consolidate its position as one of the top retail banking conglomerates in the region.

Read: NCBA shores up struggling units in E. Africa

Its branch network has grown to 192, from 184 in 2022, after opening eight new branches in Kenya this year and five branches last year.

Global tightening

Kenyan banks are battling multiple shocks, including holding billions of dollars’ worth of Treasury bonds which are in danger of losing value as a result of a sustained high interest rate regime.

The rising interest rate is due to the government’s increased borrowing from the domestic market, coupled with persistent efforts by the Central bank to combat the threats of inflation.

Globally, monetary policy tightening heightened liquidity shock in banks that invested in Government securities and relied on the market to finance their liquidity needs especially in the US and Europe.

In the US, elevated interest rate and subsequent tightening of financial conditions, banks liquidate their securities.

The rapid increase in interest rates in advanced economies to stem inflationary risks exacerbated fragility in the banking sector leading to collapse of four regional banks in the USA and failure of Credit Suisse bank in Switzerland in the first half of this year.