Kenya still on top

East African Banks

In spite of the political and economic uncertainty that has affected Kenya over the past decade, Kenya's financial institutions still dominate the list of major banks in eastern Africa.

Visiting Nairobi in September, the group chairman of British banking group Barclays, Peter Middleton, said that Kenya looked like becoming an important banking hub for the wider eastern African and Middle East region.

Indeed, three of the four largest banks in the region are based in Kenya, while the top 10 includes one each from Tanzania, Uganda and Djibouti, plus two from Ethiopia.

The continued strength of its financial institutions aside, the Kenyan banking sector is currendy affected by poor labour relations. The country's main financial sector trade union, the Banks, Insurance and Finance Union (BIFU) had appealed for an across the board 16.7% pay rise, while the country's banks offered only 4%. The Industrial Court considered the dispute and judged 15% to be a fair increase but the banks have refused to meet the claim. BIFU is now expected to proceed with strikes scheduled for later in the year.

Kenya's minister for national development, Anyang Nyong'o, has appealed to banks operating in the country to promote bank accounts and other financial services to a greater proportion of the population. He argued that improved access to credit and savings facilities led to economic empowerment and created more small and medium sized enterprises (SMEs).

While the provision of credit to SMEs is vital to the development of both the East African economy and the region's banking sector, it is also important that long-term credit facilities are encouraged.

The East African Development Bank (EADB) plans coordinated bond issues on all three stock markets to raise funds for integration projects. The director general of the EADB, Godfrey Tumusiime, says: "The bank has been issuing bonds whose tenures have been progressively increasing, to four years, five years, and now the seven year bond. At an opportune time, the bank intends to raise even longer tenure bonds, possibly 10-year bonds."

Banks in Tanzania, Kenya and Uganda are starting to plan for greater competition within East Africa. The governments of all three countries are committed to East African political and economic integration and the creation of a regional stock exchange could be the first major step towards the integration of the three financial sectors. Kenya Commercial Bank has already set up a subsidiary in Tanzania, while other banks in the region are understood to be considering similar moves.

COMMERCIAL BANK OF ETHIOPIA

Commercial Bank of Ethiopia (CBE) has had to face increasing competition since banking sector liberalisation began in 1994. The bank had formerly held a monopoly over banking in the country but has undergone a restructuring programme over the past decade in order to allow it to operate on a more commercial basis. With 171 branches, CBE has by far the largest network in Ethiopia.

The State Bank of India was originally awarded a contract to manage CBE but the Indian bank failed to take up the agreement and the Ethiopian bank has now opted to retain control of its operations, whilst working in close cooperation with another international accountancy firm, KPMG.

CBE tended to only provide short-term credit in the past but now offers five-year loans and hopes to provide longer term credit in the future.

KENYA COMMERCIAL BANK

With an asset base of $ 1 bn, Kenya Commercial Bank (KCB) is one of the biggest banks in Africa. It was formed in 1970, when the Kenyan government took a majority stake in National and Grindlays Bank, allowing it to rename the company.

The bank recently raised KSh2.45bn from a rights issue, which was oversubscribed by around 12%, and the government has now reduced its stake in the bank to 26.2%. The new shares have been listed on the Nairobi Stock Exchange.

Pre-tax profits for the first half of 2004 stood at KSh649m, more than double the figure recorded for the same period last year.

KCB also owns two major subsidiaries that are expected to boost profits in the longer term. The creation of Kenya Commercial Bank (Tanzania) has given the company a foothold in the Tanzanian market, while Saving and Loans Kenya Limited provides mortgage finance for residential and commercial property.

KCB already operates 73 ATMs and another 45 are due to be installed over the next year: it is hoped that all branches and main shopping centres will have at least one machine by the start of 2006. With 130 branches, KCB has by far the biggest network in Kenya and is particularly well represented in rural areas.

CRDB BANK

The Tanzanian government's decision to liberalise and deregulate the banking sector led to the creation of CRDB bank in 1996. It was born out of the Cooperative and Rural Development Bank, which was a mainly state owned institution.

The Danish International Development Agency (DANIDA) agreed to back the bank on a commercial basis with financial investment and technical and managerial support. Equity in the company is now divided between DANIDA investment fund (30%), Tanzanian cooperatives (14%), 11,000 individual shareholders (37.6%), private companies (9.6%) and Tanzanian parastatals (8.8%).