I&M moves into Tanzania for a regional footprint

I&M Bank customers at the Kenyatta Avenue branch  in Nairobi. The bank plans to take advantage of the EAC  common  market and open business across East Africa. Fredrick Onyango
I&M Bank customers at the Kenyatta Avenue branch in Nairobi. The bank plans to take advantage of the EAC common market and open business across East Africa. Fredrick Onyango 

I&M Bank has acquired a Tanzanian bank for an undisclosed amount in a deal that underlines the growing trend of local banks seeking a foothold in the regional financial market.

The bank said in a statement Monday that it has acquired a controlling stake in CF Union Bank following a complete buyout of the bank by consortium that included PROPARCO of France, a Mauritius based private equity Kibo Fund and Michael Shirima, a Tanzanian business man.

CF Union Bank has three branches—two in Dar es Salam and the other in Arusha.

Arun Mathur, the CEO of I&M Bank said that the deal had been informed by the need to capture and serve the growing number of local firms that are spreading their reach beyond the Kenyan market.

“It could also influence other corporates, who require cross-border financial structures as well as those who have extensive trade dealings within the region, to move to us since we now have a presence in Tanzania,” added Mr Mathur.

The East Africa market is becoming increasingly important as the East African Community (EAC) common market takes shape since it came into effect on January 1, opening way for the free movement of labour, capital, goods and services in a market of 126 million persons.

A growing number of mid-sized firms are lining up to join the likes of East Africa Breweries Limited, Crown Berger and East Africa Cables in setting up operations in the East Africa countries including Tanzania, Uganda, Rwanda and Burundi.

Local banks have taken the cue and are establishing deals and opening operations from scratch in an effort to tap into the growing clientele base.
Banks such as KCB Group, Diamond Trust Bank and Equity Bank have been at the forefront in pushing the regional agenda.

The I&M Bank is now looking at making more acquisitions across the East Africa region egged on by a Sh1.2 billion war chest it received from two lenders on January 12.

The lenders—PROPARCO of France and DEG of Germany—grew their stake in the bank from 11.9 per cent to 21.7 per cent in the cash- for- shares deal.

“We will continue to explore such expansion opportunities in other neighbouring countries in the region,” said Mathur. The bank said its first priority will be Rwanda and that it would prefer to make acquisitions rather than set operations from scratch in keeping with its buyout strategy for expanding into new markets.

In 2008, the bank acquired a 50 per cent stake in Mauritius bank, BankOne Ltd, for Sh1.1 billion.

It also acquired Biashara Bank in December, 2002 for Sh410 million in an effort to grow its share of Kenyan market.

An acquisition provides an easy solution unlike in the case of setting up shop, from scratch, which could involve buying land, putting up buildings, hiring local staff, seeking regulatory approval, struggling to lure deposits and fighting for market share against established rivals.

The buyout, however, does not give I&M Bank an easy foothold in the battle for market share since CF Union Bank is a low tier bank in a corporate banking market dominated by Stanbic bank, Standard Chartered bank and Barclays Bank.

“CF Union Bank fitted into our criteria with a clean balance sheet and size manageable for I&M Bank,” said Mr Suprio Sengupta, I&M’s general manager.

The balance sheet of CF Union Bank stood at Sh4.7 billion in December 31, which pales compared to I&M’s assets of Sh42 billion in 2008.

I&M Bank will also have to contend with premium buyout prices that have made it difficult for local banks to match the asking prices, especially in Rwanda where increased acquisition interest by pan African banks, especially from oil rich West Africa, has ramped up the asking prices.

Since its conversion to a fully- fledged bank in 1996, I&M bank has been on the expansion trail, a move that has seen its profits grow from Sh345 million in 2005 to Sh1.1 billion in 2008.

Locally, the bank has 13 branches and is set to open four more in quarter one as it seeks to grow its share of the lending market, which stood at 3.8 per cent, besides growing its ATM network.