Family Bank is set to raise Sh3.5 billion from a development finance institution and bond issue to boost its lending business as well as cut reliance on customer deposits and shareholders for growth.
Chief executive Peter Munyiri said the lender will sign a Sh2 billion loan with the finance institution by March. The bank will repay the loan, whose interest will be slightly above the prevailing Treasury bill rates, over 10 years.
The mid-tier lender is also planning to issue a Sh1.5 billion bond after the March 4 General Election, just months after raising Sh1.2 billion in a rights issue.
“We want to have a good mix of debt and equity in our balance sheet to fund growth in our SME lending space,” Mr Munyiri said.
The cash raised will also fund Family Bank’s physical expansion plan. The lender expects to open 10 new branches this year — pushing its network to 80. Family Bank is also set to more than double its agency banking outlets from the current 500.
The lender’s shift to long-term debt financing will diversify its sources of funding away from shareholders on whom the bank has relied on to fuel its growth in the past.
Family Bank’s rights issue was oversubscribed by more than 60 per cent but the lender only took the Sh1.2 billion it had sought, arguing that it would raise more cash from debt sources to fund its expansion.
It was the lender’s second cash call after a previous one in 2009 which saw shareholders pump in Sh1.5 billion. The issue was later followed by an injection of Sh1 billion via a private share placement in September 2011.
Mr Munyiri said Family Bank would take the loan in local currency to protect it from volatility in foreign exchange rates that can significantly ramp up repayment costs if the shilling depreciates against major world currencies.
The bank’s stock of borrowings stood at Sh1 billion in September having dropped from Sh1.4 billion in June and Sh1.8 billion in March.
“Our balance sheet can comfortably accommodate the debt we are going for,” Mr Munyiri said.
Family Bank has modelled its business around micro-finance, but is now seeking to widen its offering to include home loans and corporate banking, which offer big ticket lending at relatively lower cost.
The Central Bank of Kenya places Family Bank’s market share at 1.34 per cent compared to Barclays (8.90 per cent), Equity (9.98 per cent) and KCB (14.52 per cent).
The bank has reviewed its executive suite and boardroom over the past 18 months in search of talent that will help it achieve this goal.
This culminated in the hiring of Mr Munyiri as CEO from KCB Group last June and appointment of Wilfred Kiboro as chairman of the bank.