Equity Group has secured an exemption from a rule in the Democratic Republic of Congo (DRC) that demanded the lender sell a 30 percent stake in a subsidiary to nationals of the central African nation.
The bank petitioned the DRC Senate to protect it from the rule that looked set to slow Equity’s ambition to reduce reliance on the Kenya operations.
The DRC’s Central bank—Banque Centrale du Congo (BCC)—requires banks operating in the central African nation to have at least four unrelated shareholders, including current owners, to hold a minimum stake of 15 percent each by the end of 2026 to spread risks.
Local shareholders must also own the banks at least 45 percent, a rule that was expected to trigger one of the largest deal-making in the region.
“I’m happy to say we launched our petition to the Senate and the President, and the Senate yielded to our plea. That clause is being amended, so we are no longer required to sell,” James Mwangi, Equity Bank CEO, said on Monday.
The directive known as Instruction 18 meant that Kenya’s two biggest lenders, Equity Group Holdings and KCB Group Plc, had to sell significant stakes within the next 16 months to comply with the directive.
Both lenders own 85 percent stakes in their DRC subsidiaries and were expected to cede at least a 30 percent stake to meet the regulatory demands.
Based on previous deals, Equity’s 30 percent stake is valued at a minimum of Sh42 billion, while KCB’s would go at least Sh8.86 billion.
Other listed banks operating in the DRC include Standard Bank, Citigroup, Access Bank, Ecobank, Bank of Africa and United Bank for Africa.
All these banks have operations in Kenya, which has a similar rule for holding companies but gives an exemption to listed lenders.
Central Bank of Kenya prudential guidelines bar non-operating holding companies from acquiring more than 25 percent of a bank’s paid-up share capital without the regulator’s exemption.
“We are exempt in that country, like we are exempt in Kenya or any other country from that rule,” said Mr Mwangi.
He reckoned that complying with the directive was going to be impractical, especially for listed firms like itself and KCB Group that have subsidiaries in the DRC.
KCB Group on Monday said it would offer an update on its DRC operations on Wednesday.
DR Congo is one of the biggest countries on the continent by land mass and has more than 80 million people, making it appealing to ambitious lenders in regional states looking for growth on the continent.
It has emerged as the most profitable foreign market for the Kenyan banks, posting higher profits compared to Uganda, South Sudan, Tanzania and Rwanda.
Equity BCDC posted a 22 percent rise in half-year net profit to Sh9.1 billion for the period to June.
Equity Group recorded a net profit of Sh33.3 billion with regional subsidiaries contributing Sh13.9 billion. The group also operates in Uganda, Rwanda, Tanzania and South Sudan.
The DRC subsidiary accounted for 27.3 percent of Equity Group’s tax profits in the six months to June, underlining its importance to the Kenyan lender.
The DRC has become a lucrative landing spot for African-based lenders looking for growth in the region and a foothold in the vast mineral-endowed central African country.
The two Kenyan lenders view DRC subsidiaries as foreign units that would diversify their profits and cut reliance on Kenya.
Equity was the first Kenyan lender to enter the DRC when it acquired an 86.6 percent stake in German Bank ProCredit between 2015 and 2017 before raising the share further to 94.3 percent.
In 2020, Equity acquired a 66.53 percent shareholding in Banque Commerciale du Congo (BCDC) from the family of businessman George Arthur Forrest and merged it with the continuing Equity Bank Congo (EBC) to form a new bank, Equity BCDC.
The wealthy Forrest family is known for the Groupe Forrest International, a company founded in 1922 with interests in construction, electricity, industry, mining services, agribusiness, health and welfare.
Equity raised its stake in the new outfit in 2023 to 85.4 percent, with the purchase of an extra 6.6 percent stake for Sh9.24 billion.
The deal valued the lender at Sh140 billion, signalling that the 30 percent stake that the bank expected to cede could be worth Sh42 billion.
The DRC subsidiary had a carrying value of Sh27.3 billion. But market value can be higher or lower than the carrying value at any time.
BCDC was majority-owned by the Forrest family at 66.53 percent, the government of DR Congo at 25.53 percent and minority shareholders at 7.94 percent.
Rival KCB Group marked its entrance into the DRC in December 2022 when it completed the acquisition of an 85 percent stake in Trust Merchant Bank SA (TMB).
KCB valued its shareholding in the bank, whose brand was retained as TMB, at Sh25.1 billion at the end of 2023.
KCB had previously indicated plans to acquire the remaining 15 percent stake in TMB by fully exiting founding shareholders- Robert Levy, who holds a 13 percent stake, Oliver Meisenberg (one percent) and the estate of Augustin Kabila Kisole (one percent).
The lender, at the time of acquisition, said it saw significant business opportunities from the purchase.
The triple acquisitions by Equity (Pro-Credit/BCDC) and KCB (TMB) in the DRC have helped the two top Kenyan lenders to an asset base of more than Sh1 trillion each, giving the banks the scale to become Pan-African lenders.
