By Herald Aloo/The African Report
Equity Group CEO James Mwangi expects his DRC unit to overtake Kenya’s profit contribution by 2025.
Kenyan regional bank businesses are becoming increasingly important as currency depreciation and interest-rate shocks hurt the domestic market.
The Kenya shilling has depreciated by over 20% since the start of the year, while the tightening of monetary policies led to higher interest rates, making business and consumer loans more costly. NCBA Bank Kenya, Equity Group and Kenya Commercial Bank (KCB) have all been supported by the performances of their subsidiaries outside the country.
Equity subsidiaries, which operate in the Democratic Republic of Congo (DRC), Uganda, Rwanda, Tanzania, and South Sudan, now account for close to 50% of profit. Equity BCDC in the DRC saw pre-tax profit jump 157% in the third quarter.
East African markets such as the DRC have lower levels of financial-service access, and further penetration will offer a hedging mechanism for the parent Kenyan businesses. KCB expects performance by regional units to be crucial in helping it shoulder the financial strains brought by the loss-making National Bank Kenya(NBK) bought by KCB in 2019.
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“The growth that has come out of other subsidiaries has offset the loss at NBK. It tells you that when one is down, the other will be up, and you should be able to balance your portfolio,” says KCB group finance director Lawrence Kimathi.
“Putting all your eggs in one basket will come to bite you. The investments we’ve done, whether it is acquiring a bank or focusing on our existing subsidiaries, are bearing fruit,” Kimathi adds.
Equity Group CEO James Mwangi says the lender now projects the DRC unit will overtake Kenya’s by 2025 in terms of profit contribution, and not 2030 as initially estimated. The bank is seeking to complete the acquisition of Rwanda’s Cogebanque Bank in the current fourth quarter to solidify its position in a market where it’s already present.
Approaching maturity
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“Equity has been strong in strategic input. The argument has been why we are deploying capital to low-earning markets like DRC while we have high growth and returns in Kenya. Now, the reverse has happened,” Mwangi says.
“If you look at DRC and Rwanda, for instance, they have all overtaken Kenya in terms of internal equity and growth rate. Kenya has been overcompensated by growth in profit by the subsidiaries,” he adds.
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The growth in revenue and profits reported by subsidiaries of banks outside Kenya stems from the effective expansion and implementation of successful market penetration strategies.
Kenya’s banking sector has “reached a stage of maturity or near-maturity,” says Stacy Makau, an analyst at AIB-AXYS Africa Limited. Lenders will continue targeting cross-border markets, but that will equally depend on the regulatory environment in those regions.
“The subsidiaries’ operations in the regions are still in the early stages of development and hence benefit from untapped opportunities,” says Makau. “However, the longevity of their success hinges on the stability of the economic environment in these markets, as well as their ability to navigate regulatory challenges and compete effectively,” she adds.
