The Sacco Societies Regulatory Authority (Sasra) is set to approve Mwalimu National Sacco’s bid to acquire a majority shareholding in Equatorial Commercial Bank (ECB).
Sasra chief executive Carilus Ademba has said the regulator does not have any cause to block the bid, noting that a delay could result in Mwalimu Sacco incurring losses, which it may seek to recover from the regulator through a legal suit.
“Mwalimu Sacco had already signed a contract of which if they don’t meet the deadline they signed there will be consequences. They are not using member funds to acquire, but have raised private funds and the members have passed the resolution. It becomes very difficult to stop them,” said Mr Ademba.
Equatorial Commercial Bank is currently operating on thin capital margins, curtailing its business growth. The bank’s profit after tax in the nine months through September fell by more than half to Sh49 million from Sh100.9 million last year.
The bank’s core capital, the total sum invested by shareholders, stood at 8.72 per cent of its deposit base compared to statutory requirement of eight per cent.
The statutory ratio is set to be increased to 10.5 per cent at the end of the year underlining ECB’s need to inject additional capital before the end of month.
ECB’s total capital-to-risk weighted assets, which mainly consists of loans, stood at 13.25 per cent in September compared to the required 12 per cent. The bank will be required to meet a new ratio of 14.5 per cent by the end of December.
The transaction with Mwalimu Sacco will, however, have to also be approved by the Competition Authority of Kenya.
The government had previously put a freeze on the multi-billion shilling deal pending an audit of its viability and a valuation report on the bank.
Mwalimu Sacco submitted the report in October and has been waiting for a go-ahead from the regulator.
ECB has registered mixed results in the last five years, with losses in 2010 and 2012. In 2012 the bank recorded a Sh481 million loss as its capital levels fell below the statutory levels. Several strategic investors have shown interest in buying the bank.
A former managing director of the lender had accused the majority owner, Naushad Merali, of scuttling a deal with three investors from the UK, Mauritius and Malaysia who were investing Sh1.2 billion.
Mwalimu Sacco plans to run the bank as a subsidiary. In its annual report, Mwalimu said it wanted to own a bank so it could mobilise cheap deposits through current accounts and also increase its client reach, targeting higher profitability.
Mwalimu is the largest sacco by asset base in the country, with assets of Sh24 billion. As at end of last year the sacco had 57,277 members from whom it has collected Sh18.5 billion in savings and given Sh21 billion as loans.
Mwalimu Sacco’s chief executive, Robert Shibutse, was an executive director at ECB till June this year, giving him some inside knowledge of the bank.
Conclusion of the transaction will be a first in the Kenyan market where banks are viewed as superior to credit unions. ECB is a small lender with an asset base of Sh17 billion.It is set to get on board a partner who is financially strong and with a huge customer base.