Kenyan Banks Target Ethiopia And Somalia Expansion

Ventures Africa
Tuesday, August 28, 2012

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Ethiopia and Somalia offer the best opportunities for Kenyan banks seeking acquisition and partnership deals, made possible by high capital reserves and a desire to expand across the five-member East Africa Community (EAC).

Several commercial Kenyan banks are keenly eyeing opportunities in these new growth markets, according to the Kenya Bankers Association chief executive officer Habil Olaka. Though he stopped short of naming them, big regional players such as KCB, Equity Bank and Diamond Trust Bank are sure to be interested in further expansion. The African Development Bank says that lenders have an asset base of $25 billion, making it the fifth highest capitalised industry in Africa. With Ethiopia and Somalia sharing borders with Kenya and currently highly unbanked, they offer the most immediate opportunities to big Kenyan banks, especially those, such as KCB and Equity, which already have experience of hostile environments from their operations in South Sudan.

Addis Ababa and Nairobi have been becoming friendlier in recent years after years of hostile diplomatic relationships. New bilateral trade agreements are in the offing and planned cross border infrastructure projects include Lamu Port and a high voltage power transmission line to link national grids. An improving security situation in Somalia, which has had no central government since 1991, after successes by the African Union Mission in Somalia (Amisom) in liberating most of the country from Al-Shabaab militants has increased appetite to trade in the country.

“Mogadishu has experienced a construction boom as residents return to rebuild their homes and businesses. Markets have been reopened, schools and hospitals established, and roads repaired,” said an Amisom statement, which committed the mission to stabilising the country, a move which would involve encouraging commercial banks to launch operations. Refurbishments to Aden Adde International Airport, with the likes of Turkish Airlines operating regular flights, is also designed to portray Somalia as a country that is open for business.

Central Bank of Kenya governor Njuguna Ndung’u attributed the regional expansion desired by the Kenyan banks to innovation within the industry that has helped growth.

“The open space for innovation has helped sustain growth in the banking industry and the larger financial sector,” said Prof Ndung’u.

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