by Bedah Mengo
NAIROBI, Aug. 29 (Xinhua) -- The conflict in South Sudan and the closure of banks in the Kenyan market reduced the footprint of East African nation's financial institutions across the region.
The East African biggest economy saw the number of its banks operating in the region reduce to nine in 2016 from 11 in 2015 as the number of branches fell by 36, new Central Bank of Kenya data showed Tuesday.
The apex bank's data contained in its 2016 supervision report indicated that the branches dropped from 333 in 2015 to 297, with the decline blamed on collapse of Imperial Bank, which had subsidiaries in Uganda and Tanzania and the closure of Bank of Africa which exited the Kenyan market.
"The decline of banks with regional subsidiaries was occasioned by Imperial Bank Ltd and Bank of Africa Ltd. The Ugandan subsidiary of Imperial Bank was sold in March 2016. Bank of Africa (BOA) Uganda is currently 100 percent foreign owned following the exit of BOA Kenya from the former's shareholding," explained the Central Bank, adding Bank of Africa also exited the Tanzania market where they had 25 branches in 2015.
Nine Kenyan banks during the period under review had subsidiaries operating in the East African Community (EAC) partner states and South Sudan as compared to 11 in 2015.
These are Kenya Commercial Bank (KCB) Holdings, Diamond Trust Bank Kenya Ltd, Commercial Bank of Africa Ltd, Guaranty Trust Bank Ltd, Equity Group Holdings Ltd, I&M Bank Ltd, African Banking Corporation Ltd, NIC Bank Ltd and Co-operative Bank of Kenya Ltd.
The bulk of the branches are in Uganda (99), Tanzania (77) and Rwanda (55), said the Central Bank.
Besides having presence within the EAC Partner States, some of the Kenyan banks such as I&M Bank, Ltd, Prime Bank and Equity Group have expanded beyond the region.
I&M Bank has 50 percent shareholding in Bank One Limited in Mauritius, Prime Bank (Kenya) Ltd has 11.24 percent shareholding of First Merchant Bank in Malawi and 11.46 percent shareholding of Capital Bank of Botswana and Equity Group acquired 79 percent ownership of ProCredit Bank of Democratic Republic of Congo.
As at end of 2016, Equity Bank had five branches in the war-ravaged South Sudan after closing seven of them because of a mix of hyperinflation, a battered local currency and an economic slowdown.
"Because of uncertainty, and because of a lack of peace, we have been forced to reduce those branches to five," said James Mwangi, Equity's chief executive during a recent shareholders' meeting.
KCB, on the other hand, had 17 branches in South Sudan after closing two during the period in review.
The number has, however, dropped further after the bank, the biggest by assets, announced in May that it is closing unspecified number of branches due to hyperinflation which exposed it to 34 million U.S. dollars loss in 2016.
The three-year civil war in South Sudan has considerably cut, among other things the oil output, which is a major source of foreign exchange, leading to a higher inflation amid devaluation of the country's currency.
However, despite the reduction of branches, the number of employees in the Kenyan banks rose to 6,223 in 2016 compared to 5,952 in 2015.
"Uganda had the highest number of employees at 29.76 percent mainly attributed to the country having the largest proportion of branches in the region," said the Central Bank.
Loans and deposits in the branches rose marginally showing the potential of the subsidiaries.
While gross loans of subsidiaries were worth 2.3 billion dollars from 2 billion dollars in 2015, deposits stood at 3.4 billon dollars from 3.3 billion dollars.
The subsidiaries registered a total profit before tax of 85 million dollars in 2016 compared to 83 million dollars the previous year.
"The marginal rise in deposits, profit and loans is an indication of two things, first is stiff competition from local banks and second, the Kenyan banks are facing other challenges beyond those within the business like insecurity and volatility in South Sudan which creates uncertainty in the market," said Henry Wandera, an economics lecturer in Nairobi.
