NCBA says profits weighed down by its regional units

Losses at regional subsidiaries eroded the earnings of NCBA Group #ticker:NCBA in the year ended December when the bank relied on its Kenyan operation for 99 percent of its consolidated net income.

The Kenyan business made a net profit of Sh11.7 billion in the review period while Tanzania and Uganda reported net losses of Sh1.1 billion and Sh483.2 million respectively. Rwanda was the only other market to make a net profit of Sh83.3 million.

The Nairobi Securities Exchange #ticker:NSE -listed firm reported an overall net income of Sh10.2 billion in the period.

The Kenyan business had more than doubled its net profit from Sh5.5 billion a year earlier when it absorbed losses from the three other markets, leaving the group with consolidated net earnings of Sh4.5 billion.

“Strong performance of the Kenyan bank subdued by losses in Tanzania and Uganda,” NCBA said when announcing results for the year ended December 2021.

The bank’s latest abridged annual report provides additional information, revealing the extent of the institution’s reliance on the local market which is powered by 90.4 percent of its total shareholder funds of Sh77.9 billion.

The Tanzanian market is particularly competitive, with foreign institutions holding less than 40 percent of the total banking sector’s loan book.

UK-based multinational Standard Chartered Plc #ticker:SCBK recently announced it will exit Tanzania’s retail banking business and retain institutional banking as part of a review of its African and Middle Eastern operations.

For NCBA, the performance of the regional subsidiaries is expected to improve in the future following corporate restructuring done in 2020.

Subsidiaries of the former NIC Group and CBA Group –which merged to create NCBA Group— were amalgamated in Uganda and Tanzania to reduce costs and build scale.

NCBA is among the big banks with a presence in multiple regional markets where they expanded in search of growth and diversification.Most of the home-grown lenders, however, still derive the bulk of their earnings from the local market but their foreign subsidiaries’ contribution to consolidated earnings has been on the rise.The uptake of banking services in the neighbouring countries is lower than in Kenya, indicating significant opportunities for lenders that can take meaningful market share.More recently, Kenyan banking multinationals have preferred to pay a premium for existing banks in the regional markets rather than start operations from scratch.

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