Dubai Islamic Bank kicks out Imperial bosses in buyout deal

Dubai Islamic Bank (DIB), the largest bank in the United Arab Emirates (UAE), has bought the minority stake that troubled Imperial Bank directors held in its Kenyan subsidiary as it awaits the issuance of an operating licence to formally enter the East African market.

Dubai Islamic Bank (Kenya) chief executive Dan Omoro said the Emirates lender had decided to part ways with Imperial Bank after the local partner got embroiled in an ethical and regulatory quagmire arising from its sudden collapse last September.

“When it became clear that Imperial Bank had issues with the regulator we had to disengage – so now DIB Kenya is fully owned by the UAE parent,” said Mr Omoro, who did not disclose the price at which it bought the stake.

The Islamic lender had formed a partnership with Imperial Bank, which held a 24.9 per cent stake in the Kenyan subsidiary through Downstream Investments – a firm owned by nine companies, eight of which owned 100 per cent of Imperial Bank.

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The buyout took place even as it emerged that the UAE bank has spent more than Sh2 billion on the Kenyan subsidiary that was established nearly two years ago, but is yet to enter the lending market.

DIB got an approval to operate a bank in Kenya in December 2014, but is yet to get an operating licence nearly two years later.

Its application for a permit remains in limbo following the Central Bank of Kenya’s decision to suspend issuance of new licences.

Imperial Bank’s association with Dubai Islamic Bank had become a major blot on the Emirates lender’s profile – forcing a quick parting through a buyout.

Getting rid of Imperial Bank is said to have been one of the conditions the Central Bank of Kenya set for DIB to qualify for consideration once the moratorium is lifted.

DIB had brought Imperial Bank directors on board to help it navigate entry into the Kenyan market. Imperial Bank was at the time seen as a strong financial institution with deep knowledge of the Kenyan market.

Dubai Islamic Bank opened three branches, set up a head office in Nairobi’s Upper Hill, and hired about 100 employees after getting the initial approval.

The collapse of Imperial Bank last year saw the Central Bank of Kenya freeze issuance of new licences, arguing that it needed to boost its supervisory capabilities to handle existing banks before bringing more on board.

READ: Fate of Dubai Islamic Bank staff in limbo as CBK says won’t issue licence

Dubai Islamic Bank is estimated to spend Sh70 million a month on the Kenyan operation indicating that the investors have so far pumped in more than Sh1.4 billion in operating expenses alone since December 2014.

DIB is also expected to have invested at least Sh1 billion to meet the minimum core capital requirement for commercial banks. The core capital is usually absorbed in set-up costs such as information technology, licence acquisition and office set-up.

The CBK is yet to lift the moratorium, leaving DIB investors to continue spending on the Kenyan operation without the possibility of generating any revenue.

“There is no denying the fact that there is frustration among our shareholders given the time it has taken to get a licence,” said Mr Omoro, adding that they have however not lost hope of getting an operating permit.

It has not helped that the operating environment for banks has also changed significantly since DIB entered the Kenyan market – especially with the recent passing of a law that caps interest rates and diluting the attractiveness of the banking market.

President Uhuru Kenyatta’s signing of the Bill into law sparked a battering of bank stocks at the Nairobi Securities Exchange as investors assessed its possible impact on future profitability of banks.

DIB is 28.3 per cent owned by government backed Investment Corporation of Dubai, 6.9 per cent by wealthy businessman Saeed Ahmed Lootah and the rest of by the investing public.

The CBK had in a media briefing held six weeks ago declined to offer indication as to when it planned to lift the freeze on licensing new banks, insisting it was still in the process of boosting its supervisory department.

Governor Patrick Njoroge has announced that the CBK hired 15 new employees in the supervisory department.

Mr Omoro is the second chief executive of DIB following the exit of Philip Ilako who was said to have had a one- year running contract with the bank and exited in May.

He joined DIB last year as head of retail banking from CFC Stanbic where he was in charge of distribution. He has also worked at Standard Chartered Bank for 10 years, rising to the position of head of alternative delivery channels.

DIB had its eyes trained on the nascent Shariah banking market in Kenya whose growth is mainly driven by wealthy but unbanked Muslims.

The Islamic lender is one of Emirates’ biggest banks with an asset base of about Sh3.9 trillion, which is larger than the entire Kenyan banking industry that is currently worth Sh3.65 trillion, underlining its ability to sit out the wait.

DIB would have been the second international bank to set up a green field operation in Kenya following the entry of Nigeria’s United Bank of Africa (UBA) seven years ago.

UBA posted its first profit this year lagging other lenders who opted to enter the country through acquisitions, underlining the challenges of starting from scratch in the market.

DIB will have a longer journey to walk to profitability as it will have to first recover the sunk funds before paying the shareholders.