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Lenders' regional expansion bears fruit as Kenya's contribution slows

Financial Standard
 KCB Group CEO Paul Russo and Trust Merchant Bank SA (TMB) Oliver Meisenberg during the final sign-off ceremony event. [File, Standard]

As Kenya's economy grapples with challenges, banks are actively seeking out new avenues for growth.

Their focus has now shifted towards the region, as they aim to take advantage of regional trade agreements and explore fresh opportunities amidst the declining prospects at home.

Banks such as Equity, KCB Group, Ecobank, and the United Bank of Africa  (UBA) are now seeking to take advantage of the opportunities presented by Kenyan traders.

This comes at a time when manufacturers and traders are strategically positioning themselves to fully benefit from the new Africa-wide trade pact that has recently been implemented.

As trade and integration continue to improve, the East African region has emerged as one of the most rapidly expanding economic blocs in Africa.

The Kenya Association of Manufacturers (KAM) recently formed a partnership with the Africa Export-Import Bank (Afreximbank) through a memorandum of understanding.

This partnership is expected to support the local manufacturing sector. Projections indicate that this agreement has the potential to boost intra-African trade across all subregions, effectively creating a single market of 1.2 billion people with a combined GDP of over $3.4 trillion (Sh513 trillion).

This agreement is the largest of its kind since the establishment of the World Trade Organisation. To their credit, the diversification strategies implemented by Kenyan lenders are already yielding positive results.

For example, Equity Bank reported that its subsidiaries accounted for half of the bank’s profits during the nine months ending September 2023.

These subsidiaries, operating in Uganda, Tanzania, Rwanda, South Sudan, and the Democratic Republic of Congo, contributed 54 per cent to the bank’s profits during this period.

Transaction incomes

In an effort to mitigate the impact of the economic slowdown in Kenya, the bank has been actively expanding into foreign markets in recent years.

In addition to increasing transaction incomes, Equity Bank has also relied on its subsidiaries to reduce its dependence on the Kenyan market.

Equity Group Chief Executive James Mwangi said the lender plans to further expand its loan portfolios outside of Kenya and increase the subsidiaries’ share of profits. “We have increased the subsidiaries’ contribution to profitability,” said Mwangi. 

Similarly, KCB, like other banks in the region, now recognises that its growth, which was previously driven by the Kenyan market, hinges on establishing itself as a prominent player in the broader region.

KCB Group CEO Paul Russo said the lender’s subsidiaries outside Kenya recorded a threefold surge in total assets and net profits during the third quarter. “While we continue to operate in a tough operating environment, our subsidiaries have shown great resilience,” he said. Mr Russo said the net profits generated from these regional enterprises also experienced a threefold increase to hit Sh12 billion.

“With a solid and well-diversified balance sheet, we are on track to meet our full-year ambitions going by the improved performance in the third quarter, supported by resilient business segments and subsidiaries,” he said.

In addition to its domestic operations in Kenya, KCB operates subsidiaries in DRC, Uganda, Rwanda, Burundi, South Sudan, and Tanzania.

Russo attributed this growth to the doubling of profits from Tanzania and Uganda, along with the inclusion of TMB, which further contributed to the significant rise in earnings.

UBA also recently announced its intentions to expand its lending operations in Kenya, following receipt of a trade finance facility worth $150 million (Sh22.6 billion) from Afreximbank.

In a statement, UBA said it will utilise the funds to prioritise lending to small and medium-sized enterprises (SMEs).

UBA Group Chief Executive Oliver Alawuba said the facility will enhance its effort to promote intra-African trade.

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