Revealed: Sh21bn CBK bailout for Jamii Bora Bank


Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | DIANA NGILA | NMG

The Central Bank of Kenya (CBK) handed Kingdom Bank, formerly Jamii Bora Bank, a Sh20.96 billion emergency cash lifeline last year to rescue the small lender from a liquidity crunch and fading customer confidence.

Co-operative Bank of Kenya -- which acquired a 90 percent stake in Jamii Bora Bank for Sh1 billion in August 2020 and renamed it Kingdom Bank — revealed the CBK loan facility that saved the small lender from an imminent collapse.

“During the year, Kingdom Bank Limited received additional support from the CBK of Sh20.96 billion in the exercise of its statutory mandate as a regulator towards strengthening the liquidity position geared towards restoring eroded customer confidence in a bid to turn around the entity back to profitability and stabilise the banking sector,” Co-operative Bank #ticker:COOP said in its newly published annual report.

The interest-free loan is guaranteed by Co-operative Bank Kenya and is repayable over 10 years with a grace period of three years which means that its servicing will kick in towards the end of 2023.

Co-operative Bank-- now the parent company of Kingdom Bank-- further discloses that the CBK had also handed Jamii Bora a Sh465.78 million loan the previous year before the acquisition.

The disclosures shed light on the CBK’s behind-the-scenes operations that saved the lender from sinking—forestalling a potential market confidence crisis not long after the infamous collapse of other three small banks: Dubai Bank, Imperial Bank and Chase Bank.

The CBK in April 2016 announced the roll-out of a special facility to commercial and microfinance banks facing liquidity challenges not triggered by acts of mismanagement.

The regulator opened the window following the placement of Chase Bank under receivership on April 7, 2016 due to its inability to meet its financial obligations.

“We will avail [sic] a facility to any commercial or microfinance bank that comes under liquidity pressures arising from no fault of its own. We will avail [sic] this facility for as long as is necessary to return stability and confidence to the Kenyan financial sector,” the CBK said in a notice then.

The CBK never disclosed the terms of this window. It is also not clear if the lending to Kingdom Bank fell under this category.

CBK governor Patrick Njoroge recently said the regulator is open to offer emergency cash support to Spire Bank whose core capital and shareholder funds have been wiped out by eight years of back-to-back losses.

“Any bank that is facing liquidity challenges has at its disposal all sorts of tools [but] of course it also depends on the source of the liquidity challenges,” Dr Njoroge told an online Press conference when asked if the financial services regulator was concerned about the liquidity situation at Spire Bank.

The liquidity support facility is in addition to the overnight lending facility — currently priced at 13 percent — that is available to banks that fail to borrow from their fellow lenders.

Jamii Bora was first to be acquired by Commercial Bank of Africa (CBA) at about Sh1.4 billion but the deal was scuttled, leaving the small lender in the dark.

CBA abandoned the deal and instead opted for a merger with NIC Bank to form NCBA Group #ticker:NCBA — now Kenya’s fourth-largest bank by asset base.

Jamii Bora had stopped publishing its results after March 2018, an occurrence that the regulator did not explain.

Co-op Bank wants to use the acquired lender to create a niche bank to offer specialised credit such as micro small and medium-sized enterprise banking, asset finance, and leasing.

Kingdom Bank posted a Sh169 million loss at the end of last year, down from Sh1.2 billion in the previous year.

The performance of Kingdom Bank has recovered further to post a Sh126.7 million net profit in the three months to March 2021, putting it in a good position to close the year profitable.

Kingdom Bank is now compliant with all CBK capital and liquidity ratios. It had Sh1.15 billion core capital and a liquidity ratio of 387 percent in March.

A valuation report by the NCBA Investment Bank for internal use by Co-op Bank had shown that the acquired outfit would require up to Sh12.5 billion to be on track again.

‘Project hope’

The valuation findings were among the documents that Co-op shared with the Capital Markets Authority and shareholders when it was seeking approval for the deal christened ‘Project Hope.’

Unlike other top lenders such as KCB Group #ticker:KCB and Equity Group #ticker:EQTY, Co-op Bank has been concentrating on the Kenyan market for growth through branch expansion, launch of new businesses, and the acquisition of stakes.

Other Co-op Bank Group subsidiaries include Co-optrust Investment Services Limited and Co-op Consultancy & Insurance Agency Limited, which it owns fully.

The lender also holds a 60 percent stake in Kingdom Securities Limited, and 51 percent in Co-operative Bank of South Sudan.

Associate firms include CIC Insurance Group #ticker:CIC (24.7 percent) and Co-op Bank Fleet Africa Leasing Limited with a 25 percent stake.