Kenyan banks have finally found a window of opportunity in Ethiopia’s closed economy. Local banks attempted in vain to enter the Eastern Africa’s most restricted economy in 2013.
However, the lenders seem to have found an entry point with Kenya Commercial Bank on Thursday announcing it had received a licence to open a representative office in Ethiopia.
This gives the bank a chance to tap Africa’s second largest market by population.
In 2013, Ethiopia locked out Kenyan banks in an agreement that allowed local companies operating in other sectors to make forays into the country.
The deal, a special status agreement (SSA), which Kenya penned with Ethiopia, gave Kenyan companies access to the country.
The agreement was however restricted to trade, investment, infrastructure and food security alone.
Ethiopia heavily restricts foreign investors from venturing into the telecommunication, banking, media, retail, insurance, and electricity sectors.
The country seems to be now gradually opening its doors.
Aside from KCB, CfC Stanbic Bank is also set to open a representative office in the country.
“As required by the authorities, we made an application to the regulator to open the Rep Office and we were granted the necessary licences and approvals,” KCB communication manager Peter Mwaura wrote back to Smart Company on email.
“KCB has been at the epicentre of driving the economic expansion agenda across the larger East African region for decades and we are glad the Ethiopian government has given us this chance to facilitate this transformation.”
IMPRESSIVE ECONOMIC GROWTH
Ethiopia has consistently registered remarkable economic growth, averaging about 10 per cent over the past five years.
Its huge population, which is the second largest on the continent after Nigeria, offers immense opportunities for business.
The country’s financial services industry is however one of the least developed in the region. As at October 2013, pan-African financial service provider Ecobank estimated Ethiopia’s unbanked population to be around 80 million people. This is the main reason Kenyan banks are itching to get into the country.
Local lenders are also experiencing profits shrink as a result of market volatility and tension after Central Bank’s regulatory action against two banks — Dubai and Imperial banks — giving them all the more reason to cast their nets wider in the region.
Last week Kenya Commercial Bank and Equity Bank announced profits supported mainly by subsidiary banks.
Equity Bank profit rose 14 per cent to Sh12.8 billion after tax between January and September, boosted by expansion into the regional market and SME banking.
Deposits from subsidiaries in Uganda, Rwanda, Tanzania, Burundi and South Sudan, grew by 93 per cent while profits grew by 92 per cent for the nine months to September.
Equity Group CEO James Mwangi said the regional subsidiaries will increase their contribution to the bank’s earnings from the current 10 per cent to 60 per cent in the next five years.
Kenya Commercial Bank Group, which reported a Sh13.7 billion in profit after tax, saw international businesses contribution to the bottom line rise from 7 per cent in 2014 to 12 per cent.
KCB and Equity, the biggest bank by asset and client base respectively, are seeking new markets in Ethiopia and Democratic Republic of Congo.
The two countries have a huge unbanked populations.
“The Kenyan market is becoming saturated so banks are going after the regional space where penetration is still very low and there is room for growth,” said Sterling Capital trader Eric Munyoki.
Equity Bank acquired 79 per cent stake in DRC bank, Pro-Credit increasing the number of countries it currently operates in to six. Others are Uganda, South Sudan, Tanzania, Rwanda and Kenya.
Mr Mwangi says the bank is targeting 10 million clients in the next five years from DRC alone.
SOURCE: DAILY NATION