Kenyan banks dominate EA regional expansion race

Increased expansion of Kenyan banks to the East African region is expected in the year which would possibly lead to increased performance, according to Oxford Business Group.

At the start of 2018, nine Kenyan lenders operated a total of 306 subsidiaries in EAC up from 297 a year earlier.

Equity Bank led in the region with 104 locations in five countries. Diamond Trust Bank (DTB) operated 70 branches in three countries, while KCB group had 60 branches in five member states.

According to the report, this was pushed by Nairobi’s status as an advanced financial centre, helping some of larger banks establish a successful presence in regional markets.

Uganda still remained the home of highest number of branches, accounting for 102 locations, followed by Tanzania (81) and Rwanda (55).

“Of course the expansion trend will continue in 2019 due to interrogation for investment in the region,” Kenya Bankers Association chief executive Habil Olaka said.

The vision is set despite a rough operating environment in Tanzania and Uganda that saw a 1.01 per cent decline in profit generated from subsidiaries to Sh8.79 billion in profits in 2017, compared down from the Sh8.88 billion in 2016.

The spread of operations to the region is one the market changes that banks have taken for growth away from the challenges posed by interest rate framework.

The sector has been faced with challenges from the introduction of interest rate cap since its implementation in 2016 with most banks reporting reduced margins of profitability.

This was evident at end of 2017, with growth of the sector’s net loans and advances standing at 5.6 per cent in the year, compared to a five-year compound annual growth rate of 13.2 per cent.

Cytonn investments also reported a one per cent decline in earnings per share for the listed banks in the same year compared to an average of 6.7 per cent.

According to Central Bank, pre-tax profits also declined by 9.6 per cent to Sh133.2 billion in 2017 from Sh147.4 billion in 2016.

Oxford report however commended lending regulation to have helped spur competition and consolidations.

A proposed merger between NIC Bank and Commercial Bank of Africa (CBA), if successful is expected to gain wider market share with a customer base of 38 million.

This would also mean a shift in position for the CBA which has operations in the region with potential to spread into new markets across the continent.

In 2017, DTB acquired 100 per cent stake in Habib Bank Kenya bringing to an end in presence of the Pakistan-based institution.

“Future industry performance should be supported by the country’s economy, with the World Bank estimating GDP expansion to 5.5 per cent at the end of fiscal year 2018/19 that bodes well for the financial industry,” the report stated.