Dismal: Newbie lenders struggle as loss streak continues

A Dubai Islamic Bank branch in Nairobi. The bank’s operational expenses rose from Sh568 million last year to Sh745.8 million in the nine months to September this year. [Elvis Ogina, Standard]

New entrants into the banking sector are struggling to get a footing in the Kenyan market as they continue with their loss-making streak.

Dubai Islamic Bank is one such lender, announcing a Sh665.8 million net loss for the nine months to September this year to push it further into the red from a Sh561 million loss it made in a similar period last year.

The bank, which earlier this year hired former United Bank of Africa boss Peter Makau, saw operational expenses rise from Sh568 million last year to Sh745.8 million.

The sharia-compliant bank owned by the United Arab Emirates is barely two years old in the local market and has found it difficult to make its mark.

The former presidential hopeful Peter Kenneth-linked Mayfair Bank has also found the going tough, posting a Sh169.49 million loss after taxation in the period under review from Sh222.39 million a year earlier.

Licensed to operate in August last year, the bank has only two branches in Nairobi and Mombasa and is affiliated to Mayfair Insurance.

“The bank complied with prudential limits on capital adequacy, with shareholders remaining strongly committed to its long-term growth,” said Chief Executive Raminder Bir Singh.

Only the State Bank of Mauritius (SBM) made a profit but on the back of acquiring Chase Bank, posting a net profit of Sh1.8 billion.

When it entered the market having bought Fidelity Bank, SBM managed a loss of Sh330 million in the nine months to September last year.

Until recently, Kenya was a lucrative market for banks with huge spreads, meaning they could mobilise funds cheaply and lend expensively.

However, negative sentiments from the collapse of Chase Bank, Imperial Bank and Dubai Bank threw the market off balance.

After the banks failed, the Central Bank of Kenya imposed a moratorium on licensing new banks in November 2015, although the process of launching Dubai Islamic Bank was already in motion, which allowed the lender to make an entry. The moratorium was later lifted and since then, the sector has only seen the entry of Mayfair into the segment with Bank Al-Habib Ltd of Pakistan, and Société Générale setting up representative offices.

CBK said at least nine banks had sought approval to set shop in Nairobi, citing a resilient economy, deeper financial connections and a dynamic regional market.

“We have nine banks from different jurisdictions that have expressed an interest in coming to Kenya,” CBK Governor Patrick Njoroge told the press. However, he did not disclose their names or their countries of origin.