Consolidated Bank share sale set for Cabinet approval

The Treasury is set to table before the Cabinet plans to sell Consolidated Bank after receiving a report on the proposed transaction from the Privatisation Commission.

Finance Secretary Henry Rotich said in an interview on Monday that the sale could involve an initial public offering (IPO), strategic investor(s) or both.

“We are preparing a cabinet memo to implement the advice of the privatisation committee,” said Mr Rotich.

The invitation of strategic investors would be important to inject new capital into the bank which has been operating on thin capital adequacy ratios for the past two years.

As at September last year the bank’s headroom for taking new customer deposits had shrunk to within one percentage point of the legally allowed limit.

Promises of new capital from the Treasury, which is the main shareholder in the bank, have remained outstanding forcing the lender to issue a corporate bond last year as a stop-gap measure for its capital needs.

Consolidated Bank board of directors has in the past stated its preference for an initial listing at the Nairobi Securities Exchange.

Listing, however, does not amount to injection of new capital needed by the bank.

In 2010, the privatisation process had been initiated with transaction advisers led by PricewaterhouseCoopers conducting due diligence and review of the bank. It, however, stalled along with other government privatisation deals due to a lack of a substantive privatisation board.

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Inadequate capital has seen the bank’s profit drop for three years in a row. The government had agreed to inject Sh500 million in 2012, but the sum was never disbursed.

To cover its capital deficit, Consolidated Bank issued a Sh2 billion corporate bond with an equal tranche held off for a later date. The first tranche raised Sh1.7 billion.

The dip in profits is expected to negatively influence the bank’s going price as the government prepares to sell it.

Consolidated Bank was formed in 1989 by merging the operations of nine insolvent banks for government to save public savings held by the lenders.

The bank completed its turnaround in 2010 when it cleared its accumulated losses without capital input from the government, but its growth has been slow without financial muscle.

The Central Bank has been pushing banks to increase their capital base to ensure the sector has enough buffer to absorb any volatility in the market, putting pressure on small lenders such as Consolidated Bank.