Cooperative Bank plans joint ventures in Uganda, Ethiopia

Cooperative Bank of Kenya Group Managing Director Gideon Muriuki. The bank will sponsor 655 bright but needy students this year. PHOTO | FILE |

Cooperative Bank of Kenya plans to expand into Uganda and Ethiopia by September next year through joint ventures with the respective governments.

Kenya’s third largest indigenous lender said it had set aside about Sh2.3 billion to finance its entry into the two markets in which its local rivals have found difficult to operate.

“The bank is in the process of expanding operations into Uganda by the second quarter of 2015 and Ethiopia by quarter three of next year,” Cooperative Bank’s group managing director, Mr Gideon Muriuki, told Smart Company.

The lender has a presence in South Sudan through joint ventures with the local cooperative movement. The bank holds a 51 per cent stake in the ventures while the movement has 49 per cent.

COOPERATIVE MOVEMENT

In Uganda, just like in South Sudan, Mr Muriuki said the lender plans to acquire a 51 per cent stake by pumping in Sh1.13 billion out of the total capital requirement of Sh2.2 billion. The cooperative movement of Uganda is to provide the balance.

“Shared ownership gives the bank a local identity and immersion in the local economy, which is a positioning that is competitively superior to ensure long-term sustainability of the business,” Mr Muriuki said.

Developing business partnerships with cooperative societies has given the listed lender an edge in Kenya by granting it access to the country’s 12,000 saccos that have more than 10 million customers.
Cooperative Bank will join the league of nine other Kenyan banks operating in Uganda.

The Central Bank of Kenya’s annual bank supervision report for 2013, released in June, showed that Kenyan banks with subsidiaries in neighbouring countries suffered losses of more than Sh1.1 billion last year.

FOREIGN LENDERS

“Four of the subsidiaries that registered losses before tax were operating in Uganda, indicating stiff competition,” said CBK in the report. The banks that found the going tough include Imperial Bank, NIC, Commercial Bank of Africa, and Bank of Africa.

The country’s largest bank by customer base, Equity, has posted mixed results. Equity has 31 branches in Uganda. The year ended December 2013 saw the bank’s subsidiary record a drop in profit before tax to Sh52 million from Sh57 million in 2012.

The Ugandan unit posted a pre-tax profit of Sh19 million in 2011 while in 2010 and 2009, it posted losses of Sh798 million and Sh266 million respectively, a pointer to how foreign lenders have found it difficult to survive in Uganda.

“Our strategy of establishing joint ventures to serve cooperatives is proving to be an attractive proposition to many governments that are keen to help the majority in the population engage with the economy,” Mr Muriuki said.

SET UP SHOP

Cooperative Bank’s entry into Ethiopia will be a first of its kind given that the country restricts foreign investors from venturing into its telcoms, banking, media, retail, insurance, and electricity sectors, only allowing selective participation.

The restriction has slowed the aggressive expansion agenda of all Kenyan banks, which have opened subsidiaries in the region to cut reliance on the local market. No Kenyan lender has set up shop in Ethiopia.

The bid to enter Ethiopia may, however, be helped by a special agreement former president Mwai Kibaki signed with Ethiopia’s Prime Minister, Hailemariam Desalegn, allowing Kenyan lenders to establish a presence in the country.

“With a huge population of over 85 million, Ethiopia is a ripe and attractive market for us, but this is subject to the approval of our entry into that market,” Mr Muriuki said.

The lender has allocated Sh1.16 billion out of a total requirement of Sh2.29 billion, which will grant it a controlling stake at 51 per cent with the Ethiopia’s cooperative movement shouldering the balance of Sh1.13 billion, equivalent to a 49 per cent stake.