Gulf African Bank in Sh674m finance deal with IFC

Gulf African banking hall. The capital injection, by IFC, in the fully-fledged Islamic bank is expected to build the bank’s warchest for expansion. Photo/FILE
Gulf African banking hall. The capital injection, by IFC, in the fully-fledged Islamic bank is expected to build the bank’s warchest for expansion. Photo/FILE  Nation Media Group

The International Finance Corporation (IFC) plans to buy a 16 per cent stake in Gulf African Bank worth Sh422 million ($5 million).

The transaction, which roughly values the bank at Sh2.6 billion, is also set to open a Sh252 million ($3 million) credit line for the Kenyan lender, IFC said in a disclosure statement.

“The equity investment by IFC will enhance Gulf African Bank’s capital strength and provide additional capacity for growth as the bank expands its SME and Corporate lending business,” says the IFC disclosure note.

The capital injection in the fully-fledged Islamic bank is expected to build the bank’s warchest for expansion. Gulf African Bank had Sh1.285 billion in core capital as at March 31.

“We are pleased to announce that we will bring on board the IFC,” said outgoing chairman Suleiman Shahbal in a press briefing Thursday.

Mr Shahbal is stepping down to concentrate on his bid to run for governor of Mombasa County in the 2013 General Election.

The disclosure note says that the Gulf African Bank is primarily owned by Gulf and Kenyan based investors.

Istithmar World has a 32 per cent stake, Government of Dubai sovereign fund and alternative investment BMI Bank BSC has a 21.3 per cent stake, Saudi Arabia-based investor Abdullah Mohammed Al Romaizan has a 21.3 per cent stake, Gulf Cap Group, a Dubai-based firm, has a 10.3 per cent stake, while PTA Bank has a 5.3 per cent.

Gulf African Bank was established in September 2007 and began operations in December of the same year.

The disclosure note says the deal will allow Gulf African Bank to spread banking to retail customers, women entrepreneurs, trade finance and lending to the small and mid-size enterprises (SMEs).

The bank has 14 branches and plans to increase to 16 by the end of this year.

“With 14 branches in a span of four years of operation, the bank continues to focus on its expansion strategy throughout Kenya and will continue to increase brand visibility and customer experience as well as service footprint with the opening of two new branches by end of 2012,” said chief executive Asad Ahmed when the bank released its third quarter results.

For the first three months of the year the Islamic lender posted Sh65.2 million in net profit from Sh3.95 million over a similar period in 2011.

Gulf African Bank, which focuses on Islamic finance expansion, adds to a list of commercial banks that are raising their capital to finance expansion plans and meet Central Bank’s Sh1 billion minimum capital requirement.

Diamond Trust Bank, NIC, CfC Stanbic, Consolidated Bank, Family Bank and Jamii Bora have all set out plans to increase their capital base either through additional debt or equity.

The Sh252 million trade line will be drawn down in bits, with interest only payable on the borrowed amount.

IFC has invested in other Kenyan firms including Diamond Trust Bank where it has 9.85 per cent stake.

It has also lent money to Equity Bank and KCB.

Johnson Nderi, a research analyst at Suntra Investment Bank, said the high cost of funds has eaten into the banking industry’s profitability and access to cheaper funding would offer lenders a reprieve.

“Some banks have taken a beating because of expensive capital and this type of injection offers a relief,” said Mr Nderi.

Mr Nderi added that Kenyan banks have small balance sheets and to participate in such major infrastructure projects that are in the pipeline they will have to beef up their books which implies that the cash calls and seeking loans will continue uninhibited.