Kenya’s tiny, big banks
What you need to know:
- Nigeria’s largest bank, First Bank, was fourteenth with $23 billion, followed by Togo’s Ecobank, which many think is Nigerian.
- KCB was listed at position 51 at $4.4 billion for the KCB Group, and also at position 60 for the bank, with $3.6 billion in assets.
- There’s a lot of talk about large infrastructure and power projects coming on board, but where are the local banks to finance a project like a mine that costs an estimated $1 million to explore and an average $100 million to get running?
- There is no reason why counties shouldn’t borrow money for local infrastructure, health, or agriculture projects, but this cannot be at rates of 20 per cent or more, like the loan that burdened Nairobi County for several years.
Last month The Africa Report magazine published its annual list of the largest banks in Africa, ranking banks from all African countries by assets, interest income, loans and deposits.
It was dominated by banks from South Africa, Nigeria and other countries like Egypt, Morocco and Algeria, which are economies that Kenya aspires to measure against.
The list was topped by Standard Bank Group of South Africa with about $161 billion in assets, followed by Stanbic Bank, the Absa Group (Barclays) at $91 billion, First Rand and NedBank.
The rest of the top ten was populated by banks from Egypt, Morocco, and Algeria.
Nigeria’s largest bank, First Bank, was fourteenth with $23 billion, followed by Togo’s Ecobank, which many think is Nigerian.
Other banks that fell around the top twenty included Zenith, UBA and Guaranty Trust Bank that were ranked seventeenth, nineteenth and twenty-first, respectively.
Where do the Kenyan banks rank? KCB is Kenya’s largest bank, followed by Equity. KCB has a wide regional reach, in all the East African countries and branches in all ten provinces of South Sudan.
DRASTIC REFORM
Equity has 8 million customers. Both banks are growing in the region at impressive rates.
KCB was listed at position 51 at $4.4 billion for the KCB Group, and also at position 60 for the bank, with $3.6 billion in assets.
Others were Equity Bank Group at position 68 with $3.1 billion in assets, and Cooperative Bank at position 78 with $2.6 billion in assets.
Most Kenyan banks are doing well for their shareholders, with some generating returns on assets of 5 per cent and returns on equity of 30 per cent for their shareholders.
Of the 43 banks in Kenya, all but three of them have been profitable in each of the last two years. They win awards for their management and innovation in the areas of micro-lending, mobile money and card usage.
Nigeria once had almost 90 banks, but now has only 25. The Central Bank of Nigeria undertook some drastic reforms to weed out weak banks and strengthen the banking sector, mainly by raising minimum capital levels astronomically with the result that fewer and larger banks emerged.
There appears to be no distress factor in the Kenyan economy at the moment, so what could compel Kenyan banks to get bigger?
How do you shake up shareholders who are comfortable making $10 million a year from their banks?
SMALL BANKS MISS OUT
First, you tell them that they are not growing fast enough, and that even if KCB and Equity continued to grow at their aggressive pace in the East Africa region, it would be decades before they broke into the top 20 with leaders in other parts of the continent.
Second, you tell them that they are going to miss out on the big deals. A recent advertisement by the Stanbic Group highlighted some of its major deals in Eastern Africa. These included:
Arranging finance & underwriting of $90 million for Kinangop Wind
Arranging a $56 million Shelter Afrique bond
Providing $30 million to Kakira Sugar
Providing $190 million to finance to Umeme, the Ugandan electricity distributor
Arranging a $68 million private placement by UAP insurance
Providing finance of $120 million to Kwale Sugar
Providing $108 million to Triumph Power
Providing $61 million to Gulf Power
How many local banks have the capacity, financial strength and appetite to build a portfolio like this?
There’s a lot of talk about large infrastructure and power projects coming on board, but where are the local banks to finance a project like a mine that costs an estimated $1 million to explore and an average $100 million to get running?
Third, they are too expensive. Kenya also has 47 county governments with various levels of self-sustenance.
Regardless of the amount of funding drawn from the central government, it’s conceivable that a county with a serious revenue stream, track record and leadership, including MCAs, will want to seek finance from a local bank in structured deals.
There is no reason why counties shouldn’t borrow money for local infrastructure, health, or agriculture projects, but this cannot be at rates of 20 per cent or more, like the loan that burdened Nairobi County for several years.
WARY OF COMMERCIAL BANKS
If that is the cost of doing business in Kenya –and there’s been little response to pleas for banks to lower their lending rates –so be it. But that is one reason why large multi-nationals lend money to their Kenya subsidiaries at rates far below those of commercial banks.
Fourth, they may become irrelevant. It’s hard to believe that someone may out-revolutionise Equity Bank, but it may happen.
The booming construction in Nairobi and other urban areas goes on despite the country having less than 20,000 official mortgages.
Yes, people take finance from banks for real estate from banks, but they use other products like unsecured personal loans or SACCO development loans. This is expensive, and unnecessary but for their wariness of commercial banks.
NTV Business Editor Wallace Kantai – @wgkantai on Twitter – tweeted last week, quoting Dr George Njenga of Strathmore Business School:
“Kenya has 76 per cent financial inclusiveness, but if you remove M-Pesa and the like, it drops to 26 per cent. Banks have failed us.”
Twitter: @bankelele
