Blow to Equity, KCB in Ethiopia

CREDIT| Equity Bank

The recent unrest in Ethiopia that resulted in the killings of several top officials in the country threaten to derail the expansion plans of Kenyan lenders Equity Bank (EQTY) and Kenyan Commercial Bank (KCB).

KCB opened its Ethiopia office in 2015 and plans to begin providing banking services in the country before the end of 2020. Equity opened its Ethiopia office last month and plans to launch operations in the country this month of July. The Kenyan banks have been attracted to Ethiopia by the economic reforms that the government there is trying to implement to boost economic growth mostly by attracting more foreign investments. The Ethiopian Prime Minister Abiy Ahmed, who came into office in April 2018, is rolling out political and economic reforms that his administration hope will help draw more foreign investors, create jobs and generally make Ethiopia more economically prosperous. And Ethiopia’s huge population of more than 100 million people make it an attractive market to expand into for Kenyan banks like Equity and KCB that are looking to extend their footprint on the in African.

But ethnic divisions in Ethiopia, which have been blamed for the June 22 killing of the country’s military chief and the president of the Amhara region threaten to derail Prime Minister Abiy’s efforts to make Ethiopia attractive for foreign investors. The killings of top officials in Ethiopia happened as the country prepares for parliamentary elections next year. Given the ethnic divisions in Ethiopia, tensions are already building around next year’s parliamentary elections, threatening to throw the country into more violence that could in turn diminish the appeal of Ethiopian as an investment destination for Kenyan companies.

Equity and KCB have witnessed the impact of ethnic violence first-hand in Kenya following the disputed presidential vote in 2007 and they would be leery to put their investments in a restive country.

Despite the setbacks of last month marked by the killings of government officials in the capital Addis Ababa and Amhara region, Ethiopian Prime Minister Abiy says he’s committed to press ahead with the reforms he has started and that he will not steer away from them even for a moment.

Kenya’s most profitable banks
Equity and KCB are two of Kenya’s most profitable banks. Equity made a profit of Ksh6.2 billion in the first quarter of 2019. The profit increased from Ksh5.9 billion in the quarter of 2018. KCB made a profit of Ksh5.8 billion in the first quarter of 2019, up from a profit of Ksh5.2 billion in the first quarter of 2018.

Equity shares rose 1.17% on Friday to close the month of June at Ksh38.95. KCB shares jumped 0.26% on Friday and ended the month of June at Ksh38.25.