Equity Group booked a gain of Sh6.3 billion in the half year ended June from the strengthening of currencies in its regional subsidiaries relative to the Kenya shilling, highlighting one of the benefits of the company’s geographic diversification.
The gain, recorded from a translation of financial statements of foreign subsidiaries, has been rising in recent quarters from a low of Sh637 million in the prior half-year period.
The currency gains have made the bank’s subsidiaries more valuable by raising the value of their assets, earnings and dividends paid to the Kenyan banking multinational.
Equity now draws about 40 percent of its earnings from foreign subsidiaries.
The Nairobi Securities Exchange-listed firm operates in Uganda, Tanzania, Rwanda, the Democratic Republic of Congo (DRC) and South Sudan.
Most of the currencies used by the subsidiaries in these markets have gained significantly against the Kenya shilling –Equity Group’s reporting currency— over the past year.
They include the US dollar, Tanzanian shilling, Ugandan shilling and Rwandan franc, which have gained 20.6, 12.8, 22.6 and 4.9 percent respectively, compared to the Kenyan currency in the past 12 months.
The DRC –Equity’s largest operation outside Kenya— relies heavily on the US dollar. Other Kenyan banks with extensive regional presence, such as KCB Group and NCBA Group, are expected to also report gains from the translation of their foreign operations when they publish their half-year results.
The current foreign exchange gains are a contrast to the early years of regional expansion when Kenyan banks reported major losses in South Sudan, which suffered hyperinflation and devaluation of the South Sudanese pound.
While most currencies in the region have come under pressure in the past two years amid global economic shocks, the Kenya shilling fared relatively worse to trade at record lows of 150 units to the dollar in recent days.
The top banks led by Equity and KCB have signalled their intention to invest more in the regional market in acceleration of their growth and diversification strategy.
