FEP set to pay Sh4bn for controlling stake in Nyachae’s Credit Bank

Fountain Enterprises Programme (FEP) is set to acquire a 75 per cent stake in Credit Bank for Sh4 billion upon approval by the Central Bank of Kenya (CBK), the Business Daily has learnt.

Should the banking regulator give the go-ahead, FEP will raise its shareholding in the third-tier bank from the initial five per cent taken last year after the lender’s shareholders went shopping for a strategic investor.

It was not immediately clear how the new shareholding will be structured but it is likely to greatly diminish the influence of chairman Simeon Nyachae and his family.

He sits on the board with wife Grace Wamuyu while a relative Eric Nyachae is a senior executive in the bank.

Credit Bank initially went to the market seeking Sh1.8 billion through a private placement in the last quarter of 2015 but ditched the plan due to the tight market occasioned by Imperial Bank’s collapse that scared potential investors. The bank then sought a strategic investor.

The lender will use the entire Sh4 billion to expand and is banking on creating synergy with the diaspora-heavy FEP’s other businesses, workforce and foreign footprint.

Credit Bank chief executive Chege Thumbi had earlier said he expected immediate effect will be the bank growing its loan book through FEP members transferring loans.

“FEP holdings has in its stable 15 subsidiaries with a staff count of 1,000. This pool of employees presents captive retail customers. Of this employee pool, approximately 10 per cent have ongoing facilities with other financial institutions and which can be transferred to Credit Bank upon agreeing on terms and conditions.”

READ: Investment firm FEP buys 5 per cent stake in Nyachae’s Credit Bank

Credit Bank will also use FEP’s network to grow its forex business.

“The group has a footprint in the US, Europe and Australia amongst other regions with a membership of over 5,000 Kenyans. This provides an opportunity for Credit Bank to facilitate remittances back to Kenya, enjoy the attached commission revenues as well as forex gains,” said Mr Thumbi.

The information memorandum on the Sh1.8 billion private placement share offer said foreign exchange is an area where the bank is looking to diversify its revenue.

“Treasury will remain a key focus area as the bank plans to re-organise and bring better resources to drive the Treasury foreign exchange business as well as money market business,” it said.

Credit Bank will also use FEP’s branch network to expand in areas where the investment group already has a presence such as Meru, Kapenguria, Bomet, Kericho and Nanyuki towns.

Analysts say that investors eyeing the banking industry are opting to buy into existing companies since this is a faster route than starting a fully-fledged bank.

“The decision boils down to how fast you want to build up your business,” said Francis Mwangi, head of research at Standard Investment Bank, adding that it takes more effort and time to start a Greenfield operation as opposed to buying into an existing business.

As at the end of July Credit Bank had a net profit of Sh12.3 million having recovered from a Sh91.7 million loss for the 2014 financial year.

Analysts say that despite the difficult economic environment Kenyan banks are expected to maintain their profitability momentum due to favourable factors.

“The interest rates cycle is at a peak (in our view); the shilling has been stabilised, inter-bank rates are normalising, and lower oil prices will keep easing pressure on the external accounts,” said a report by Exotix.