Pakistan bank files notice to buy out small Kenyan lender
The Central Bank of Kenya. The regulator bars banks from lending more than 25 per cent of their core capital to a single borrower. Photo/FILE
What you need to know:
Pakistan’s MCB Bank is close to acquiring a Kenyan lender
MCB also operates in Sri Lanka and has indirect presence in Dubai, Bahrain, Azerbaijan and Hong Kong. It serves both retail and corporate segments of the economy
Kenya has 22 small banks, as per CBK’s classification, some of which include Oriental, Consolidated, Middle East, Jamii Bora, ABC, Equatorial, Giro
Pakistan’s MCB Bank is close to acquiring a Kenyan lender in what could mark the second takeover of a local financier in the year.
In a regulatory notice filed with the London Stock Exchange where some of its global depository receipts are listed, MCB Bank has revealed that it has been conducting due diligence on a Kenyan lender since mid last month with the aim of buying it out.
The bank, which is Pakistan’s fourth largest, has an asset base of Sh612 billion (765 billion Pakistan rupees), about one-and-a-half times more than Kenya’s largest lender by assets, which is KCB’s Sh385 billion.
“As part of our long-term strategy for overseas expansion especially in view of significant overseas presence of other peer banks, MCB Bank Limited is considering to expand its operations overseas through an acquisition of a small bank in Kenya,” says the lender in the notice to the LSE dated November 1.
MCB also operates in Sri Lanka and has indirect presence in Dubai, Bahrain, Azerbaijan and Hong Kong. It serves both retail and corporate segments of the economy. Last year it reported an after-tax profit of Sh16.7 billion.
Guaranty Trust Bank of Nigeria recently acquired 70 per cent of Fina Bank at a cost of $100 million, and disclosed that it was eyeing financing deals in Kenya’s nascent oil and gas and minerals sector.
The Fina deal was approved last week by the Central Bank.
MCB Bank did not disclose which Kenyan lender it was eyeing, and queries sent to the Pakistan firm have gone un-answered.
Kenya has 22 small banks, as per CBK’s classification, some of which include Oriental, Consolidated, Middle East, Jamii Bora, ABC, Equatorial, Giro.
“The State Bank of Pakistan has approved MCB’s request to review the target bank through a detailed due diligence exercise,” stated MCB in the filing to LSE.
Apart from the nascent mining, oil and gas sectors East African governments are also undertaking huge infrastructural projects driving up the credit appetite of the State and private sectors.
Equatorial Bank has been in the market for sale since last year but is yet to get a buyer forcing the owners to inject capital at the beginning of the year through a rights issue.
Highly placed sources within the bank ruled out acquisition by the Pakistan lender, but confirmed that it was in talks with interested investors who were not from Pakistan.
Recent oil, gas, rare earths mineral and coal discoveries in Kenya, Uganda and Tanzania have attracted international lenders with the capacity to fund the capital intensive exploratory and production processes.
International banks are seeking to exploit lack of financial strength by the Kenyan lenders to take on the huge loan demands of the oil and gas sector to grow their businesses.
The Central Bank of Kenya regulations bar banks from lending more than 25 per cent of their core capital to a single borrower. KCB can lend up to Sh10 billion to a single borrow, as per the guidelines.
Foreign banks based in the country, such as CfC Stanbic and Citi Bank, have relied on the balance sheets of their parent companies to finance big ticket transactions.
Other investors who have bought into Kenyan banks in the recent past include Amethis Capital of France and Germany’s DEG which acquired equity in Chase Bank.
Some international lenders have also opted to open representative offices in the country through which they source for financing deals.
American JP Morgan Chase received approval in principle last year to open an office in Kenya. Others with representative offices in the country include Bank of China, HDFC Bank of India, HSBC of UK and South African banks Nedbank and FirstRand.
Kenyan lenders have also been pushed to seek additional capital by the Central Bank which has raised the minimum capital adequacy ratios requirements.
The additional capital is expected to be sourced from existing and new shareholders.
Small sized banks are thus easy targets during this period as they have been calling on their shareholders to inject funds as new core capital requirements came to play each year for the past five years.
