Business
Kenyan banks, awash with cash, looking to expand beyond East Africa
Cash-rich Kenyan banks are increasingly looking at entering new markets outside East Africa and compete with Nigerian and South African lenders for control of the continent’s banking sector.
Co-operative Bank and DTB are the latest Kenyan lenders to announce plans to venture outside East Africa as they seek to grow earnings amid increased competition at home.
The Co-operative Bank, which launched operations in South Sudan last year, said it was targeting the Ethiopian and Ugandan markets, while DTB said it has its sights on Malawi and Mozambique. The move is driven by growing balance sheets resulting from increased capital sizes, a maturing market and growing shareholders’ pressure to boost earnings.
Ernst and Young estimates that for every US$1 in gross domestic product (GDP), the country’s lenders hold US$0.6 of banking assets. In Tanzania, Uganda and Rwanda, the figure stands at US$0.3, US$0.2 and US$0.12 respectively.
The shift to markets outside the East African Community will put Kenyan banks in direct competition with South African and Nigerian lenders, who on average, have more capital. For example, the local units of Stanbic and Barclays Bank each have larger capital base than Kenya’s top 5 banks combined.
But where Kenya lacks for capital, it makes up for in experience. Whereas South African banks are big on large corporate and large ticket financing, Kenyan banks have experience in the retail market, a factor that could help them grow their units in markets such as Malawi.
“The key is to focus on the retail end – the South Africans focus to a large extent on corporate deals – also, given that a sizeable number of their existing clients will have businesses in these markets, East African banks can look at servicing them,” said Kuria Kamau, an analyst at Kestel Capital.
The experience of using technology to increase access to the un-banked could be especially crucial. Top Kenyan lenders like the Equity Bank, the Kenya Commercial Band and Co-operative Bank now allow their customers to open, save and borrow money through their phones without having to physically visit branches.
