KCB, Equity race to prop up Tanzania subsidiaries
Tanzania, Rwanda, Uganda, the Democratic Republic of Congo (DRC), and South Sudan. KCB also has an additional unit in Burundi.
Equity will inject $20m into its Dar es Salaam operation in 2025, while in Uganda, where the minimum core capital for commercial banks was raised six times to Ush150bn ($41.2m) in Novem- ber 2022, the subsidiary will receive $10m.
Conversely, KCB will allocate a sig- nificant portion of the National Bank of Kenya (NBK) sale proceeds to capitalise its Tanzania unit. The NBK sale, ex- pected to conclude in 2025, is projected to generate about $125.4m, based on a binding valuation of 1.25% of its cur- rent book value.
'If you look at KCB Tanzania's full- year performance, profit went up by 20%. With additional funding, it can generate much more, probably upwards of about Ksh4bn in profit. So we have to fuel some of our businesses,' says KCB Group CEO, Paul Russo.
The Tanzania unit was responsible for revenue inflows worth $48.6m and a net profit of Ksh2.6bn ($20m) in 2024, mak- ing it the third most profitable external subsidiary after the Democratic Republic of Congo (DRC) and Rwanda.
For James Mwangi, Equity Group CEO, the new capital injection for Tanzania, which generated $9.3m in net profit in 2024, is meant to support growth given its 'immense potential'.
'Most of the regional markets are gen- erating enough cash to fund their growth. However, the occasional moment comes when we realise we need to support them to move to the next level,' he explains.
Tanzania's large population, its grow- ing GDP – which has outpaced Kenya – and its close connection to the $2.3bn Lobito Corridor rail project, make it par- ticularly attractive for lenders seeking growth opportunities.
Kenya's GDP growth was the lowest in East Africa at 4.7% in 2024, compared to Tanzania's projected 5.4%. Last Oc- tober, President Samia Suluhu Hassan's administration announced an interest in joining the Lobito Corridor project to help connect the agricultural and min- ing countries with global markets via the Indian Ocean. Supported by a consortium that includes the US government, Africa Finance Corporation, and the AfDB, the Lobito project connects three mineral- rich nations – Angola, Zambia and DRC, where Equity is the second-largest bank.
'It [Tanzania] is a country that has 11 neighbouring countries, and it is impor- tant we align ourselves with its strategic position,' says Mwangi.
Brent Malahay, the Group's Chief Strat- egy Officer, stated in November 2024 that in the next three years, the Group will be 'looking at strengthening its presence in the region (Lobito corridor) to create a complete ecosystem.'
KCB's Russo says: 'For us, the growth opportunity today is Tanzania. It is mas- sive in terms of population. Just look at the good performance over the last 3-4 years.'
Equity, with a total asset base of Ksh1.8trn ($13.9bn), has consistently maintained a superior market position compared to KCB in nearly all shared ex- ternal subsidiaries except in Tanzania and South Sudan. The Group, which began operations in Tanzania in February 2012, holds a modest 1.7% market share compared to KCB's 2.3%.
Externalising domestic competition
This new race to increase capital in Tanzania reflects KCB and Equity's growing competitiveness that started domestically, where a subdued eco- nomic context has hampered perfor- mance and pushed lenders to explore external options to mitigate risks.
However, the Tanzanian market continues to present challenges, despite decades of Kenyan banks attempting to grow organically. Various factors, including lower integration, regulatory obstacles, and a lack of strategic acquisi- tions, have all contributed to the slug- gish penetration of Kenyan lenders in this market. The gradual shift of capital from Dodoma to Dar es Salaam – which hosts most bank branches – has also partly disrupted lenders' operations, especially regarding government-related businesses.
Currently, NMB Bank and the Coop- erative Rural Development Bank (CRDB) dominate the Tanzanian market, collec- tively commanding approximately 43% of the total size. 'Tanzania is a challenging market. In 2025, the Group will be putting a lot of focus on Tanzania,' says Equity's Mwangi.
While Equity expects its Tanzania units to retain all earnings to bolster near-term growth, KCB CEO Paul Russo anticipates dividend inflows from the Tanzanian sub- sidiary within the next two years.
© Copyright IC Publications 2022 Provided by SyndiGate Media Inc. (Syndigate.info).
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