Equity Banks pan-African expansion plan faces criticism from Citi.

By bne IntelliNews October 12, 2012
The plan of Kenyan Equity Bank to raise funds for pan-African expansion through a secondary public share offer faced strong criticism by Citigroup Global Markets, Business Daily reported. According to Citis analysts, the lenders plan was premature and it should first focus on making its non-Kenyan business operations in eastern Africa more consistently profitable and also on talent retention before it seeks to be a pan-African bank. Equity Bank, the largest bank by number of clients in east Africa, has operations in Uganda, Tanzania and South Sudan. It has said it wants to enter the markets of Nigeria, Ghana, South Africa and the Democratic Republic of Congo (DRC) under its pan-Africa expansion initiative. In our opinion, Equity Bank needs to focus on delivering on its East African expansion strategy before going pan-African, Citis said in a report. It added that the bank has invested about KES 8bn (EUR 72.8mn) into its regional subsidiaries in the last four years. For that period (2008-2011), Equitys Ugandan unit made a pre-tax loss of KES 880mn, the Rwandan subsidiary, which operates since 2011, recorded a loss of KES 59mn, while the South Sudan unit posted a profit of KES 915mn. However, the profit in South Sudan is considered inadequate in view of the units total assets standing at KES 17bn in 2011. Moreover, the profit was based mainly on transaction fees, while the core banking business of lending lagged behind and should be improved. According to Francis Mwangi, a research analyst at the Standard Investment Bank (SIB), it would take some time for Equity to make its east African subsidiaries consistently profitable, as it has to restructure and grow them simultaneously. Mwangi noted that Kenya Commercial Bank (KCB) needed 10 years to make its Tanzanian operations profitable.

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