This month… Kenyan Banks

Each month our

website will feature exclusive analysis of the latest developments in 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 Kenyan Banks. To read more regional analysis on banking in Africa and for our exclusive Top 200 Banks in Africa 2009, pick up the The Africa Report’s October-November edition, which is out now.

Mid-year results for 2009 show Kenyan banks were able to avoid overexposure during the worst buffeting of the economic crisis. According to the Central Bank of Kenya, pre-tax profit for the sector rose 2.9% in the first six months of the year to KSh24.6bn ($322.8m), compared to the same period last year.

Some banks fared better than others; Standard Chartered Kenya emerged in top spot at the half-way mark, reporting a 43% rise in profits in its interim results. The bank has spent KSh4bn on technological infrastructure since 2006 and sees mobile banking as a key part of its growth strategy.

On the other hand, Equity Bank saw a 15% fall in first-half profits and blamed it on a doubling of non-performing loans. This was despite an energetic branch expansion from 83 to 145 offices and 59% growth in customer numbers. According to its chief executive, James Mwangi, 52% of all bank accounts in Kenya are with Equity Bank.

Diversifying into the region

Banks have not abandoned their regional expansion plans. “They didn’t want to have all their eggs in one basket, so they continued to grow their business outside our borders,” Kenyan financial analyst Aly Khan Satchu told The Africa Report. “The catalyst for this move was the political turmoil of 2008 which made them feel they had to diversify their risk, and you continue to see strategies which are in this direction.”

Following Equity Bank and Kenya Commercial Bank (KCB), which both operate in southern Sudan, Co-operative Bank of Kenya is in negotiations to open a Cooperative Bank of South Sudan through a joint venture with the southern Sudanese government and also hopes to expand into Uganda. Most of the banking activities in southern Sudan are fee-based deposit and money transfer services, leaving banks that expand there exposed to surprisingly limited risk.

Kenyan banks have not lost confidence in the region’s bourses. KCB, which posted a 4% rise in pre-tax profits for the first half of 2009, listed 50,000 shares on Rwanda’s Stock Exchange in June following stock exchange listings in Uganda in November and Tanzania in December 2008. CFC Stanbic is also putting its confidence in the domestic markets to finance a $64m capital-raising exercise and raised $32m in June through a seven-year and floating-rate bond on the Nairobi Stock Exchange that was 28% oversubscribed.

One-stop shop

Despite a crux of problems among Kenya’s stockbrokers, mid-cap banks continue to pursue brokerage business in an effort to provide more corporate financial service options – a ‘one-stop shop’ approach to banking. NIC Bank launched its NIC Capital Services venture in 2008 and in May 2009, Co-operative Bank bought a 60% controlling stake in the struggling stock brokerage Bob Matthews Stock Brokers Limited, which now trades as Kingdom Securities Limited.

Around KSh15bn has been injected into the Kenyan banking sector since last October, with two cuts to the cash reserve ratio, the latest a 1/2% reduction to 4.5% in July. Still, Kenyan Central Bank governor Njuguna Ndung’u hit out at banks in August for their high interest rates, which he said were causing borrowers to default. Analysis by the Central Bank found the stock of non-performing loans increased by 19.9% between May and June 2009. Some banks have responded, such as Standard Chartered, which lowered the cost of borrowing on personal loans by 3.75%, but others have been reluctant to follow.

Instead, banks have been gobbling up government paper, which has not helped bring down the cost of money. “They’re forcing the private sector to pay an egregious price right now for money because the temptations of the government of Kenya are very high,” says Satchu.

Some analysts question if the banks have been under-provisioning for their bad loans. However, Barclays Kenya, which reported a 5% rise in pre-tax profits for the first half of 2009, managed to lower its loan-loss provision by 49%, attributing this to a focus on the quality of its loan portfolio.

Going mobile

Kenyan banks are leading the way in Africa’s mobile finance revolution. The runaway success of M-Pesa, telecom operator Safaricom’s mobile banking service, has jolted traditional bankers into action. The service is now used by 39.9% of Kenyans, according to the FinAccess Survey 2009. Mobile banking services, or tie-ups between banks and mobile phone companies, will become a major part of Kenya’s financial landscape.

Bankers must fight to win the attention of the unbanked. FinAccess found the number of the financially excluded people fell 5.7% between 2006 and 2009, but the corresponding growth in take-up of formal financial services remained sluggish at 3.7%. There is a lot of room for innovative and technology-driven expansion.

KENYAN BANK RANKING

Below is a ranking of Kenya’s biggest banks, taken from our annual list of Africa’s Top 200 Banks.

Figures are based on firms’ 2007 performance. To see the full Top 200 Banks in Africa 2008, visit our interactive ranking.

Rank 08

Rank 07

Company name

Country

TOTAL ASSETS

NET EARNINGS

CREDIT

DEPOSITS

56

58

BARCLAYS BANK OF KENYA

KENYA

2 494 113

180 058

1 666 567

1 725 914

66

72

KENYA COMMERCIAL BANK

KENYA

1 905 987

234 834

1 141 872

1 493 287

81

84

STANDARD CHARTERED BANK KENYA

KENYA

1 443 599

88 516

624 392

1 168 158

102

105

CO-OPERATIVE MERCHANT BANK OF KENYA

KENYA

1 039 515

71 497

607 954

866 547

115

188

EQUITY BANK

KENYA

839 661

92 114

351 650

498 892

129

124

CFC BANK

KENYA

684 417

35 883

264 234

317 950

132

130

COMMERCIAL BANK OF AFRICA

KENYA

664 607

49 301

279 724

571 120

133

134

NATIONAL BANK OF KENYA

KENYA

655 174

46 161

124 091

549 297

139

182

DIAMOND TRUST BANK KENYA

KENYA

569 482

37 245

366 737

460 409

142

128

CITIBANK NA KENYA *

KENYA

546 123

–

–

–

147

161

NIC BANK

KENYA

496 690

44 290

351 349

392 425

177

163

STANBIC BANK KENYA *

KENYA

373 128

–

–

–

185

176

INVESTMENT & MORTGAGES BANK

KENYA

353 549

19 645

232 594

288 242

FIGURES FOR 2007. US$ THOUSANDS. *2006 FIGURES.