The Central Bank of Kenya (CBK) has halted plans by investment group Fountain Enterprises Programme to acquire a 25 per cent stake in Credit Bank.
The regulator, who recently denied Fountain Enterprises Programme (FEP) a licence to operate a microfinance-bank, cited reservations about the group’s financial capability to adequately capitalise the bank, and also its share register, in scuttling the transaction.
FEP had ultimately targeted a controlling stake of at least 70 per cent in the third tier lender but has now announced that it plans to offload a five per cent stake it holds in the bank associated with politician Simeon Nyachae, following the CBK decision.
“We will take another two years to work on other business priority areas before considering this option or any other in the banking sector,” said FEP Holdings chief executive officer Maurice Korir.
Mr Korir, who replaced the group founder and vision bearer John Kithaka as CEO last month, disclosed individual members of the investment group had subscribed for shares worth over Sh1 billion in a capital raising drive, which closes on November, 15.
Credit Bank returned to profitability this year after posting a Sh59 million loss last year. Mr Korir said the bank is expected to announce a before tax profit of Sh123.7 million for the nine months ending September.
Credit Bank’s capital position is in line with regulatory requirements raising query on the reason cited in declining the acquisition.
It has a core capital of Sh2 billion more than double the officially required minimum. Its adequacy ratios are also sufficient and give it room for growth.
Parliament recently declined a proposal by National Treasury to increase minimum shareholder capital required to operate a bank to Sh5 billion from the current Sh1 billion. Passage of the proposal would have forced small lenders such as Credit Bank to seek fresh capital.
The FEP had disclosed long-term plans to take up a majority stake, 75 per cent, by injecting Sh4 billion in the lender.
The CBK decision puts in focus the ownership of FEP, which has an asset base of Sh4.4 billion with a bouquet of companies in different sectors.
Some of the companies owned by FEP in the financial sector include FEP Insurance Agency, Fountain Credit Services and mobile money transfer operator Mobikash.
Others include Suntec Supermarket, Citadelle Security, Kisima Real Estate, Fountain Technologies and Fountain group of schools.
Recent happenings in the banking sector - closure of three banks in 15 months and introduction of interest caps - have made it paramount for a bank to have strong investors who are ready to withstand storms.