How banks are reaping big from regional units

Kenyan banks have begun reaping the rewards of their aggressive regional expansion, with subsidiaries across East and Central Africa now driving profitability to unprecedented levels.

This is despite the domestic economy grappling with a surge in bad loans and market volatility.

A review of half-year financial results from Kenya’s top lenders by The Standard —including Equity Group, KCB Group and i&M — reveals a seismic shift.

Regional operations now contribute significantly to cushioning against domestic headwinds and validating long-term diversification strategies. This trend comes as the Kenyan domestic sector faces mounting financial distress. 

According to a recent Central Bank of Kenya (CBK) survey, the ratio of gross Non-Performing Loans (NPLs) to gross loans climbed to 17.6 per cent in June 2025, up from 17.4 per cent in March. 

This grim statistic signals widespread financial distress among borrowers. The personal and household sector has been identified as the hardest hit, with 44 per cent of banks predicting a further rise in defaults within this segment. 

For commercial banks, this surge in bad loans erodes profitability and increases the risk of loss, making the performance of their regional units more critical than ever.

Equity Group, the region’s largest bank by customer base, has found a strong hedge against these domestic challenges.

The bank reported a 17 per cent surge in profit after tax to Sh34.6 billion, with its regional banking subsidiaries contributing a substantial share of this success.

In its financials, the lender explained that its “regional banking businesses contributed 49 per cent of banking deposits, 50 per cent of the loan book, and 50 per cent of banking revenue.” Equity Group Chief Executive James Mwangi emphasised the lender’s transformation, stating that the execution of its strategic business plan “has started to reflect on the balance sheet and performance of the Group.”

Specific growth figures for the regional subsidiaries underscored their role in this performance. Profit after tax increased by 22 per cent in the Democratic Republic of Congo (DRC), 40 per cent in Uganda, and a remarkable 75 per cent in Tanzania.

“Equity Group is no longer a Kenyan bank but a regional bank with nearly half of its business now outside Kenya,” Mwangi said during a recent investor briefing, highlighting the success of the diversification strategy. Similarly, KCB Group, East Africa’s largest bank by assets, has seen its subsidiaries outside Kenya contribute more than a third (33.4 per cent) of pre-tax profits in the first half of 2025, up from 28 per cent in 2024.

In a statement, KCB attributed this to its focus on “deepening and leveraging regional scale to catalyse economic transformation.” The lender noted that its regional units in Uganda, Tanzania, and Rwanda were outperforming expectations. “Subsidiaries outside KCB Bank Kenya continued to turn in stronger performance, with their profit before tax making up 33.4 per cent of the overall Group earnings, and 31.4 per cent of the balance sheet,” the bank’s Group CEO Paul Russo stated.

Co-operative Bank of Kenya also reported an 8.4 per cent profit growth to Sh14.1 billion, with its South Sudan and investment banking units contributing to the positive results.

This trend reflects a broader strategic shift. While Kenya’s economy is projected to grow at a modest 4.8 per cent in 2025—a decline from earlier projections—regional markets offer faster economic growth and less saturated banking sectors. For example, the DRC is projected to grow by 6.8 per cent and Uganda by 6.3 per cent.

For I&M Group, which is banking on organic growth as it seeks to cement its footprint in the region, subsidiaries contributed 24 per cent to the group’s profit before tax. Customers’ deposits improved by two per cent to Sh429.4 billion while assets went up four per cent to Sh588.9 billion.

The group, which has operations in Mauritius, Uganda, Rwanda, Tanzania and Kenya, targets to have other subsidiaries outside of Kenya contribute 50 per cent to its balance sheet.

The results show Tanzania’s subsidiary contributed five per cent to the group’s profit before tax numbers, Rwanda 15 per cent, Uganda two per cent and Mauritius four per cent.

Group Chief Executive Kihara Maina said even as the bank seeks to grow its subsidiaries, it will not be at the expense of the Kenyan unit.

“We certainly would like to see at least 50 per cent contribution coming in from outside Kenya, but that is not at the expense of Kenya,” he said. “We expect Kenya will continue growing at a pace. What we want to see is our subsidiaries also growing strongly.”

Across the subsidiaries, the group has 851,0 customers, which it targets to grow to a million by 2026.

I&M Group Chief Financial Officer David Ngata said the drop in subsidiary contribution from 26 to 24 per cent shows how competitive the businesses are within the group. Kenyan unit’s profit before tax grew 31 per cent to Sh8.2 billion as customers’ deposits went up 0.4 per cent to Sh314.8 billion. 

I&M Bank Kenya CEO Gul Khan noted the 25 per cent increase in customer base to 562,000, even as digital transactions rose to 12.9 million during the period. The African Continental Free Trade Are is also fueling cross-border transactions, enabling Kenyan banks to finance regional projects like Equity’s involvement in the Lobito Corridor.

This cross-border activity is now a crucial component of their growth model. However, challenges and risks remain. Equity’s operations in the DRC face currency volatility, while KCB’s South Sudan unit has had to restate profits due to hyperinflation. 

Tanzania and Uganda have also imposed strict capital controls. Despite these hurdles, the banks are doubling down on their expansion.

Equity plans to enter three new African markets by 2026, while KCB is eyeing an entry into Ethiopia following its recent financial sector liberalisation. 

As Kenya’s economy sputters, regional diversification, according to bankers and analysts, has evolved from a simple growth tactic to a core survival strategy, with subsidiaries now delivering a significant portion of overall profits.