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This month… East African banks

By Gemma Ware
Posted on Wednesday, 22 December 2010 14:30

Each month we focus the spotlight on a sector or banking region, accompanied by an interactive list of Africa’s top players drawn from our two annual rankings, the Top 500 Companies and Top 200 Banks in Africa. We’re also highlighting related articles from our free archive.

This month we are focusing on East Africa’s banks, which are breaking geographical and technical boundaries to get new customers. Click to search our interactive ranking of Africa’s Top 200 Banks.

As the East African Community begins to take firmer form, Kenya’s banks continue to manoeuvre into position ahead of an expected increase in cross-border activity. Knowing that Kenyan enterprises expanding into the region will be keen to do business with local branches of Kenyan banks, they are following their customers to Kampala, Juba and Kigali.

In July, Kenya’s Co-operative Bank was in negotiations to help set up a Southern Sudan Co-operative Bank, for which the Kenyan government will contribute 70% of the start-up investment. Kenya Commercial Bank is aiming to use part of a KSh15bn ($182.5m) capital-raising exercise to help its expansion.

The move to launch regional operations is not a low-risk option. Equity Bank has only just begun turning a profit in its South Sudanese operations and reported losses of USh3bn ($1.33m) in Uganda between April and July.

Although Ethiopia has the region’s largest bank in the Commercial Bank of Ethiopia, its market is one of the most closed to competition. In late July, the National Bank of Ethiopia relaxed caps on credit and lending after the IMF said they were doing little to help cut inflation or to counter the threat of demonetisation. While bankers reacted with unease, business owners were relieved.

In Kenya, the economic climate looks positive for bankers and their customers. “The banks have a lot of liquidity, which in the past they have been keen to invest in government securities. Now they are really looking to diversify into the real economy,” said Eric Musau, research analyst at African Alliance Securities Kenya. The Central Bank of Kenya’s monetary policy committee cut its benchmark interest rate from 6.75% to 6% in late July.

Mobile transfers

Borrowers hope the establishment of a credit-reference bureau on 31 July will bring down the cost of loans as banks feel more confident in assessing risk.

Kenya Commercial Bank

Kenya’s biggest bank by assets, Kenya Commercial Bank (KCB) has cemented itself as a key player and announced a 16% increase in pre-tax profits for the first half of 2010. Chief executive Martin Oduor-Otieno attributed the growth to the aggressive pursuit of affordable deposits.

In July, KCB carried out its third rights issue, raising Ksh12.5bn. The issue increased the bank’s capital base to KSh35.4bn and reduced the government’s stake to 17.7%. Already cross-listed on the Kampala and Dar es Salaam bourses, KCB became the first company to list on the over-the-counter market in Kigali in June 2009. KCB has moved into South Sudan because of demand for finance from non-governmental organisations. KCB plans to complete its regional expansion with a launch in Burundi in the near future.

Mobile banking has become the norm in East Africa. Barclays and Standard Chartered offer balance checks by mobile while others, such as Equity Bank, aim to profit from customers who make large volumes of low-value transactions. Its M-KESHO account – linked to Safaricom’s M-PESA money transfer scheme – provides savings and insurance schemes. In July, Equity Bank announced that profits rose by 46% in the first half of 2010.It has also linked up with Orange Kenya’s and will be offering all of its Orange Money customers the chance to get a Visa Debit card as well as a bank account with Equity.

Tanzanian banks have also had a good start to 2010. CRDB Bank’s after-tax profits were 52% higher year-on-year in June. In August, shareholders at Tanzania’s third-largest bank, the National Bank of Commerce, agreed to float 25% of its shares in an initial public offering.

This article was first published in the October-November 2010 edition of The Africa Report.