Mr Robert Shibutse, the Equatorial Commercial Bank executive director, during an interview with the Business Daily at the bank’s head office in Nairobi on Monday. Salaton Njau
A consortium of international investors has bought a majority stake in Equatorial Commercial Bank in a transaction that is set to boost the lender’s capital by up to Sh1.3 billion.
The bank has created additional shares to incorporate the new shareholders from the United Kingdom, Mauritius and Malaysia, the executive director of Equitorial Bank Robert Shibutse told the Business Daily on Monday.
The additional funds will be used to boost the bank’s capital base and finance its expansion plans.
“The most viable option for us has been to go for external injection of equity into the bank; $15 million is what we are looking for as an initial round of capital injection,” said Mr Shibutse.
The transaction is only waiting the Central Bank of Kenya’s approval having been sanctioned by the bank’s board and shareholders at an extra-ordinary general meeting held on October 26.
“The whole amount of capital is coming into the institution, no amount is being paid to any of the existing shareholders,” he added.
The capital injection will lead to a board restructuring whose initial mandate will include the appointment of a new managing director following the retirement of Peter Harris, who opted not to renew his contract after turning 64 years.
Mr Harris served the bank for four years during which period it merged its operations with Southern Credit Bank in 2010.
Though he declined to disclose the stake that the new shareholders will be taking up in the bank, Mr Shibutse said that it would “make the individuals and one corporate institution” majority shareholders.
Equatorial Bank’s ownership is associated with wealthy businessman Nasahud Merali through his investment vehicle the Sameer Group.
Board members of the bank include Dan Ameyo, Martin Ernest, Akif Butt, Ablali Kurji and Thomas Mutugu.
As at June this year, the bank, which operates 12 branches in the country, had a paid up capital of Sh1.7 billion.
The bank has been operating on lean capital adequacy ratios, which limits the pace of growth.
As at June ECB’s core capital to total deposit ratio was at 8.01 per cent, marginally above the statutory minimum of eight per cent. The ratio determines the amount of customer deposits that a bank can accommodate.
Core capital includes a bank’s share capital, share premium and retained earnings.
Its total capital to total risk weighted assets, a ratio which dictates the lending space available, stood at 12.82 per cent against a statutory minimum of 12 per cent.
In the first six months of the year the bank recorded a loss of Sh244 million compared to a profit of Sh30 million in a similar period last year.
The decline was attributed to increase in cost of deposits which saw it pay out more to its customers for their savings than what it received as interest for loaning out money.
Mr Shibutse said that the recent drop in interest rates and cheaper source of funds from the new capital would help the bank record improved performance for the remaining part of the year but noted that it would not be sufficient to overturn the first half loss.
Rights issues
ECB also borrowed an additional Sh517 million during the three months between March and June, indicating its appetite for huge capital to propel its business.
Other commercial banks have also been involved in capital raising ventures driven by an impending review of regulatory requirements and the need to finance expansion plans with most of them turning to shareholders through rights issues.
Chase Bank is engaged with strategic investors keen to inject additional capital to the bank which has also been operating on lean capital adequacy ratios while Family Bank has been courting strategic investors with IFC, through its subsidiary, Africa Capitalisation Fund showing interest.
Central Bank has given banks 24 months to have a minimum core capital to total deposits ratio of 10.5 per cent and a total capital to total risk weighted assets ratio of 14.5 per cent.
