logo
Regional subsidiaries boost profits for Kenyan banks

Regional subsidiaries boost profits for Kenyan banks

Zawya01-07-2025
Virtually every aspect of lend- ing for the big banks, says Ronny Chokaa, a senior ana- lyst at Nairobi-based Capital A Investment Bank, 'was almost flat in Kenya [over the last year and more], but in the subsidiaries, it went up. Most of the external economies were growing faster than Kenya. So, banks benefited from actual lending outside Kenya.'
Nearly all Kenya's banks wit- nessed a surge in external profits in 2024, with Equity Group generating the highest at Ksh24.4bn ($188.9m), accounting for half of the total Ksh48.8bn ($377.7m) net profit.
Its closest competitor and the largest bank in Kenya, KCB Group, reported that 30.3% or $144.7m of its total net profit of $478.3m came from foreign subsidiaries, while NCBA Group achieved $24.8m, representing a 13% share of the total.
The profit share from I&M Group's subsidiaries also rose to 29% or 46.4m in 2024, despite its Mauritius sub- sidiary, Bank One Limited (acquired in 2008), plunging into losses. I&M had a total net profit of $128.5m during the period.
The increase in profit contribution, cou- pled with the potential for more dividends from foreign subsidiaries in the near fu- ture, highlights the gradual maturity of these external investments after years of capital injection by parent banks.
Lawrence Kimathi, KCB Group CFO, says robust external subsidiaries are important 'to diversify and de-risk Kenyan con- centration' while Equity Group's CEO, James Mwangi, views the Kenyan unit as 'a sleeping giant that can push back.
'The strategy of regional expansion is truly effective. This diversification aids us in managing economic shocks. It will be intriguing to see Kenya regain its posi- tion as contributing more than 50% of the profit,' Mwangi notes.
The decline in the contributions of Ken- yan domestic units coincides with slower GDP growth, projected at 4.7% in 2024, down from 5.6% in 2023. This growth lags behind peers like Rwanda, Tanzania and Ethiopia.
Tight monetary conditions, which per- sisted until mid-2024, when the Central Bank of Kenya (CBK) initiated minimal cuts in benchmark interest rates, con strained private sector lending, with banks prioritising government debt over riskier retail and individual loans.
Commercial bank lending to the private sector contracted by 1.4% in December 2024 compared to a year previously, due to several factors including reduced demand for loans amid defaults.
Banks lagged passing on the benefits of the benchmark rate cuts to Kenyan bor-rowers, citing costly funds tied to locked deposits. The reduction in interest rates is anticipated to encourage more borrowing for consumption and investment, thus stimulating economic activities in 2025.
Kenya's economy is forecast to rebound this year at 5.3%, attributed to improve- ments in the agriculture and service sec- tors. However, this growth will still lag behind countries such as Rwanda, DRC and Tanzania, where growth rates are expected to exceed 6%.
'Interest rates are inching down, and inflation remains under control. We are remaining at the table with other Kenyan bankers to see how we can quickly transmit changes in in- terest rates,' says Paul Russo, KCB Group's CEO.
The strengthening of the shilling against the dollar, which led to cur- rency translation losses, also partly reduced the value of assets and earn- ings, especially in Kenya, South Sudan and DRC, where lenders have signifi- cant holdings in dollars. The Kenya shilling appreciated from a high of 160 per dollar in February 2024 to 129 last December.
DRC is the key
Big lenders KCB Group, Equity Group, DTB Group, NCBA, and I&M Group have op- erations across Tanzania, Uganda, South Sudan, the Democratic Republic of Congo (DRC), Rwanda, Mauritius and Burundi.
Outside Kenya, DRC tops the profit chart for Kenyan banks, buoyed by a large un- banked population and the arrival of global firms seeking investments in the mineral sector. The central African nation is esti- mated to have $24trn-worth of untapped minerals such as cobalt, gold and copper, needed in the fast-growing e-mobility sector.
Both Equity Banque Commerciale du Congo (EBCDC) and KCB's Trust Merchant Bank (TMB) achieved double-digit profit growth in DRC last year, reaching $120.7m and $80.5m respectively.
Equity enjoys a bigger market share than KCB in DRC, having entered the popu- lous country earlier through a series of acquisitions that began in 2015, to spur market penetration. Today, EBCDC, with 79 branches, is the second-largest in DRC af- ter Rawbank, boasting an asset base worth $5.1bn, more than double KCB's $2.1bn.
As in DRC, Equity has outperformed KCB, I&M Bank, and NCBA in Rwanda. The lender commands an asset base of $962.1m and generated a net profit of $41.8m in 2024 in Rwanda, while KCB reported $23.2m profit from its $712.1m assets.
NCBA, which holds 3.5% of Rwanda's banking sector, reported a gross loss of $1m last year, with the management not- ing in its outlook that 'Rwanda is clouded by external vulnerabilities due to escalat- ing conflict with the DRC'.
2024 marks the second consecutive year that NCBA's external subsidiaries collec- tively realised a profit growth, turning from a combined gross loss of $12.8m in 2021 to $24.8m profit last year. NCBA Group, which heavily relies on its do- mestic Kenyan unit, has three exter-nal banking subsidiaries in Rwanda, Tanzania and Uganda, along with digital operations in Côte d'Ivoire.
In Uganda and Tanzania, the Ken- yan lenders are struggling to grow and challenge other institutions like South Africa's Standard Group (Stan- bic), which maintains a relatively firm grip of those two markets.
NMB Bank and Cooperative Rural Development Bank (CRDB) are also dominant in Tanzania, collectively commanding about 43% of the mar- ket.
While the performance of Kenyan banks improved in those two markets in 2024, the profit contribution from the Uganda and Tanzania units was low last year, ranging between 0.6% and 5% for Equity, NCBA, and I&M Group.
'We are exploring ways to achieve a breakthrough in Tanzania because it is a strategic market. Starting in 2025, the group will invest heavily and put a lot of focus on Tanzania,' says Equity CEO James Mwangi. (See page 87.)
However, there are still stark risks in the DRC and South Sudan, as military clashes intensify amid faltering peace talks. Kenyan banks operate branch- es across various locations in the DRC, primarily in Kinshasa, Lubumbashi and Goma.
KCB has over 110 branches in different parts of the DRC. Its operations in eastern
DRC, where Rwanda-backed M23 rebels have gained control, have already reported a 10% impact on their revenue within the first two months of 2025.
This impact translates to approximately $23.2m in revenue loss that could worsen if the conflict spreads to other parts, espe- cially Lubumbashi, DRC's commercial and industrial hub located in the southeast.
'Luckily, eastern DRC is not that big and not very economically advanced or densely populated. If the situation continues and escalates, it could worsen. For now, we can absorb the 10% impact we've experienced,' says Russo of KCB.
Foreign interest in DRC mines has partly exacerbated ongoing geopolitical tensions, with the US reportedly a frontrunner in sealing a mineral pact with Kinshasa in exchange for military support to neutralise the M23 rebels.
Similarly, the war in South Sudan, the world's youngest nation, has led to deaths, disrupted businesses, and threatened oil exports, the country's primary source of revenue. Equity, KCB, and Co-operative Bank, which together control nearly 40% of South Sudan's banking sector, had mixed performances in that market in 2024. In South Sudan, KCB grew faster than any other Kenyan bank, reporting a 53% year-on-year rise in revenue to $31.8m. Equity and Co-operative Bank experienced profit drops of 40% and 98%, respectively, in Juba due to decreased cus- tomer deposits and rising loans. The South Sudan unit is the sole external subsidiary for Co-operative Bank, which it co-owns with the national government.
Mixed dividend pay-outs
The overall profit increase by Kenyan banking heavyweights resulted in record dividend pay-outs. The top nine banks declared a combined dividend of Ksh85.3bn ($660.2m). However, the dividend pay- ments from players like KCB, Equity, NCBA, and Co-operative Bank, compared to for- eign banks in Kenya, fell short of market expectations, given their impressive fi- nancial performance.
Some analysts believe this is a conserv- ative approach as a result of the lenders aiming to build more capital for growth in external markets, particularly in Ethiopia, which some are targeting once banking regulations are finalised.
KCB, for instance, paid $74.3m in dividends, reflecting just 15.5% of the total $478.3m net profit. It froze dividends in 2023 after a profit drop. Equity paid a $123.8m dividend, a modest 6% annual increase, while NCBA offered $70m.
'The low dividends are part of a long-term strategic plan targeting a stronger capital base now that regula- tors in various countries are increas- ing minimum capital requirements for banks,' argues Chokaa at Capital A Investment Bank. 'We also antici- pate that Kenyan lenders, primarily KCB and Equity, will pursue future acquisitions in Ethiopia or markets where they have weak penetration,' he adds.
Amid impressive performances, many external subsidiaries may soon begin con- tributing dividends to their parent banks in Kenya. Aside from the Kenyan unit, Equity currently receives dividends from Rwanda and South Sudan, with Mwangi noting that the other subsidiaries are 'ac- cumulating capital and retaining every- thing to sustain growth.'
KCB also expects its Rwanda, Tanza- nia and DRC units to start contributing dividends in 2025. However, the CEO says DRC might be exempt, given the ongoing military wars.
Dividend payment by external sub- sidiaries is 'something that gong forward will be a push and that will improve our pay-out ratio ultimately,' says Lawrence Kimathi, KCB's CFO. n
Nearly all Kenya's banks witnessed a surge in external profits in 2024, with Equity Group generating the highest at Ksh24.4 bn ($188.9m).
There are still stark risks for banks in DRC and South Sudan, as military clashes intensify amid faltering peace talks.
© Copyright IC Publications 2022 Provided by SyndiGate Media Inc. (Syndigate.info).
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Workshop on Documentation and Distribution of Vegetable Seeds
Workshop on Documentation and Distribution of Vegetable Seeds

Zawya

time36 minutes ago

  • Zawya

Workshop on Documentation and Distribution of Vegetable Seeds

The Ministry of Agriculture organized a workshop to discuss a draft resolution aimed at documenting and distribution of vegetable seeds developed at agricultural research centers and those entering the country through various means. The seminar was attended by Ministry staff from all regions and agricultural experts. Mr. Tekleab Misgina, Director General of Regulatory Services at the Ministry of Agriculture, stated that the national committee established in 2024 to regulate the distribution and quality of various crops, cereals, and oil seeds has commenced its activities by developing a guideline to support its operations. In the first half of 2025, a guideline to regulate potato seed quality was prepared, and regulations for vegetable seed quality have been finalized. Mr. Tekleab added that both domestically improved and imported vegetable seeds will be assessed through specific quality measures, documented, and issued certificates before being distributed to farmers. At the workshop, participants discussed papers on the importance of documentation and regulation of vegetable seeds, and the significance of adhering to established guidelines and regulations. Extensive discussions followed the presentations. Distributed by APO Group on behalf of Ministry of Information, Eritrea.

President El-Sisi Follows Up on Latest Developments in Industrial Projects
President El-Sisi Follows Up on Latest Developments in Industrial Projects

Zawya

time5 hours ago

  • Zawya

President El-Sisi Follows Up on Latest Developments in Industrial Projects

Today, President Abdel Fattah El-Sisi met with Prime Minister Dr. Mostafa Madbouly, Deputy Prime Minister for Industrial Development and Minister of Transport and Industry, lieutenant General Kamel El-Wazir, Minister of Investment and Foreign Trade Engineer Hassan El-Khatib, Minister of Petroleum and Mineral Resources Engineer Karim Badawi, and CEO of the Environmental Affairs Agency Dr. Ali Hamid. The Spokesman for the Presidency, Ambassador Mohamed El-Shenawy, said that during the meeting, the President reviewed the latest developments regarding the implementation of industrial projects, the provision of necessary raw materials for industrial operations, means for securing the required financing, and efforts to establish partnerships with major international specialized companies, in addition to plans for marketing the products both locally and globally. The President emphasized the importance of petrochemical and mining industries implemented by the Ministry of Petroleum and Mineral Resources, given their role in maximizing the added value of Egypt's natural and mineral resources, meeting domestic market needs, exporting to international markets, and therefore contributing to the expansion of related industries. These efforts shall create job opportunities and boost returns for the national economy. President El-Sisi underscored the importance of accelerating the localization of related industries in Egypt and attracting investment to this vital sector. Distributed by APO Group on behalf of Presidency of the Arab Republic of Egypt. Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an 'as is' and 'as available' basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release. The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk. To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.

Arab Bank Group profits grow by 6% to $535mln for the first half of 2025
Arab Bank Group profits grow by 6% to $535mln for the first half of 2025

Zawya

timea day ago

  • Zawya

Arab Bank Group profits grow by 6% to $535mln for the first half of 2025

Arab Bank Group reported solid results for the first half of 2025, with 6% increase in net income after tax reaching $535.3 million as compared to $502.8 million for the same period last year. The Group maintained its strong capital base with a total equity of $12.5 billion. The Group's Assets grew by 9% to reach $75.2 billion, loans of $39.8 billion showed a net growth by 6%, and deposits grew by 9% to reach $55.3 billion. Commenting on the bank's performance, Mr. Sabih Masri, Chairman of the Board of Directors stated that the strong results achieved in the first half of 2025 are a clear testament to the effectiveness of the bank's strategy and the resilience of its operating model. He noted that despite ongoing economic headwinds and regional geopolitical uncertainties, the bank continued to prudently grow its operations and deliver sustainable growth and healthy returns for shareholders. Looking ahead, Mr. Masri affirmed the bank's commitment to executing its integrated corporate strategy and long-term vision, with a clear focus on meeting the evolving expectations of both shareholders and clients." Mr. Masri emphasized that Arab Bank Switzerland completed the merger of Gonet & Cie SA ('Gonet') and ONE swiss bank SA ('ONE') and strengthen its presence in Switzerland and operational entities abroad. Arab Bank Switzerland Group assets under management increased to reach CHF 18 billion. Ms. Randa Sadik, Chief Executive Officer, stated that the underlying performance of the Group continues its growth trajectory with first half results recording a healthy increase of 5% in revenue while maintaining a solid balance sheet growth of 9%. Ms. Sadik emphasized that the bank remains focused on maintaining high liquidity and preserving its high asset quality. The Group's loan-to-deposit ratio stood at 72% and credit provisions held against non-performing loans continue to exceed 100%. Arab Bank Group maintains a strong capital base that is predominantly composed of common equity with a capital adequacy ratio of 17.1%. It is worth mentioning that Arab Bank has recently received the "Best Bank in the Middle East 2025" award from New York-based Global Finance magazine, a testament to its leading position in the regional banking sector.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store