I&M Holdings Ltd (IMHL) has reached an agreement to buy out tier III lender Giro Commercial Bank in a deal that will see I&M grow its asset base by Sh16.2 billion.
IMHL, which is listed at the NSE, announced Thursday that upon completion, the acquisition will result in the immediate absorption of Giro’s banking business into I&M Bank Ltd, IMHL’s flagship subsidiary.
The two banks, however, did not disclose the financial size of the deal, which is still subject to approvals from Central Bank of Kenya, the Capital Markets Authority (CMA), the Competition Authority of Kenya (CAK) and the respective shareholders.
“I&M Group has undertaken a series of strategic acquisitions in the banking sector in East Africa and Mauritius since 2008. The proposed acquisition of Giro represents an opportunity to acquire a strong banking entity for the I&M Group to not only expand, and diversify its customer base but also to boost its human resources capacity,” said I&M Bank executive director Sarit Shah.
A 2014 report by private investment group Atlas Mara—headed by former Barclays Plc CEO Bob Diamond—stated that prospective buyers of majority stakes Kenyan banks should expect to pay 3.5 times book value of the lender being acquired.
Giro’s net assets (total shareholder’s funds) stood at Sh2.6 billion at the end of June 2015, meaning that by this criteria the deal could be worth up to Sh9.1 billion. I&M Bank’s market capitalisation at the NSE is Sh45 billion.
Atlas Mara made the report when it announced it was seeking to buy a Kenyan bank, with the price calculation also accounting for a 45 per cent premium paid for acquiring majority stake.
Giro’s half-year results for 2015 show that the bank is comfortably above the minimum capital and liquidity ratios prescribed by CBK meaning the sale is not about capital constraints.
Its total capital to total risk weighted assets ratio stands at 21.6 per cent compared to the minimum requirement of 14.5 per cent, while the liquidity ratio stands at 51 per cent versus a minimum requirement of 20 per cent.
Giro recorded a net profit of Sh237 million for the six months to June 2015, with customer deposits of Sh13.5 billion and a loan book of Sh8.6 billion.
Giro, which has seven branches in Kenya and about 9,000 customers, caters mainly for SMEs and retail customers, similar to I&M.
“Given similarity in strategy (SME and retail focus), we think the acquisition will benefit I&M Holdings on the side of branch expansion given that plans were under way to increase its network,” said Standard Investment Bank in a note on the deal.
In market share, Giro was ranked 27 out of 44 banks with a share of 0.49 per cent as at December 2014, while third tier I&M was ranked 10th with a market share of 4.1 per cent.
The merged entity would therefore have a market share of 4.59 per cent, which would be enough to push I&M above NIC Bank (4.24 per cent) into ninth on the CBK ranking.
The acquisition will also reduce the number of commercial banks in Kenya to 42, following the move by the regulator to liquidate Dubai Bank.
Giro Commercial Bank was established in 1998 following the merger of Giro Bank Limited and Commerce Bank Limited, with both institutions tracing their roots to the non-bank financial institution Credit and Commerce Finance Limited, which was incorporated in 1986.