Chase Bank raises Sh1.3bn in second cash call in 2 years

Chase Bank has raised Sh1.3 billion through a rights issue to shore up its capital base and increase lending to small and medium enterprises (SMEs). The mid-sized lender received the funds from existing shareholders, making it the second such cash call in two years after it raised Sh400 million in 2012.

The capital injection comes after Chase Bank in October secured a Sh4 billion ($45.2 million) long-term loan from Dutch development finance institution FMO for onward lending to SMEs, highlighting increased fundraising by the lender.

READ: Chase Bank secures Sh4bn for lending to small companies

“The new capital will ensure compliance with capital requirements and with a stronger balance sheet, support future growth,” said Paul Njaga, Chase Bank’s deputy CEO.

Chase Bank’s institutional shareholders include Amethis Finance, German fund DEG, European Investment Bank (EIB) and Zurich-based asset management firm Responsibility Participations AG.

The Central Bank of Kenya has set higher capital levels for banks in a move aimed at expanding their ability to absorb shocks. The ratio of total capital to total risk-weighted assets, for instance, was raised by an extra 2.5 percentage points to 14.5 per cent.

Chase Bank’s latest financials for the nine months ended September shows that the lender has beaten this minimum ratio by 2.3 percentage points. The statutory limits are to be complied with by December, a move that has seen more lenders opt to raise their capital through rights issues or debt.

Analysts estimate the entire banking industry needs to raise up to Sh70 billion to comply with the new capital rules. Falling short of the set capital levels means a bank’s ability to take up deposits or lend will be constrained, besides attracting regulatory action from CBK.

Chase Bank’s need for a larger headroom, for instance, is informed by its growth lending which expanded by a third to Sh49.4 billion in the period from Sh37.5 billion a year earlier. The lender posted a 59.3 per cent growth in net profit in the period, driven by higher interest income.

The recent rights issue signals a change in strategy for the bank which has relied heavily on long-term funding from Europe-based DFIs. The private bank in September received Sh1.6 billion ($18.4 million) from Microfinance Enhancement Facility SA to support lending to SMEs in Kenya.

Last year, Chase Bank received Sh900 million from Paris-based Amethis Finance and another Sh500 million from a European private equity fund whose identity was not disclosed. The lender signalled its intention to raise more funds to fuel its growth plans.

“The bank also continues to focus on long term sustainable growth by focusing on investing, and growing future income earning platforms through investments in IT, the branch expansion programme and raising more capital to support future growth in SME, agribusiness, youth and women,” the firm said in a statement.

More lenders are raising funds through rights issues or debt to meet the higher capital adequacy ratios and expand their capacity to lend more.

Chase Bank is ranked 12th in size out of Kenya’s 44 banks, with 35,000 deposit accounts and about 25,000 loans accounts, giving the mid-tier lender a cumulative market share of 2.4 per cent in 2013 according to CBK data.

The firm owns Rafiki, a deposit taking microfinance, stockbrokerage Genghis Capital, Orchid Capital, an investment advisory firm, Chase Assurance, real estate firm Light House Properties and Tulip Healthcare.