Mauritian bank group SBM Holdings wants to sell its Kenyan subsidiary five years after entering the market through the buyout of Fidelity Bank that has continued to struggle despite receiving financial support from the Central Bank of Kenya (CBK).
The sale has been revealed in a suit by former owners of Fidelity, who want to block the deal or be paid Sh2.5 billion they claim to have lost in the forced sale of Kenyan bank to SBM Holdings for Sh1.
The disclosure of the sale and exit of SBM Holdings from Kenya comes in a period that has seen the bank disclose it owes the CBK Sh11.3 billion offered to keep the troubled lender afloat.
The bank revealed in its financial statement for the half year to June that it is carrying a liability of Sh11.3 billion in liquidity support and repos from the CBK, a line of funding tapped mostly by struggling lenders such as Spire Bank.
“I am reliably informed that the 1st defendants subsidiary SBM Bank Kenya has not been performing well in the Kenyan market lately and that the first defendant’s executives are in talks to dispose of the bank and exit the Kenyan market,” Sultan Khimji, one of the shareholders representing Fidelity Bank owners, said in court papers.
“That in the circumstances I verily believe that the plaintiff is entitled to an order of injunction prohibiting the defendants through themselves or their servants or agents from transacting in, or disposing of, agreeing to any dealings with the shares or ownership of SBM Bank Kenya pending determination and settlement of the compensation due to the plaintiff."
SBM declined to give a comment about the planned sale by the time of going to press saying they were still consulting the parent bank in Mauritius for directions.
The Mauritian bank group entered the Kenyan market in 2017 through acquisitions of Fidelity and Chase Bank in deals shepherded by the CBK after the two Kenyan banks ran into financial crisis.
SBM Bank Kenya’s annual profits dropped 46.9 percent to Sh346.7 million in December 2021 in a period that saw most banks report double-digit earnings growth.
It has relied on the CBK to meet short-term liquidity needs. The bank did not provide a breakdown of the Sh11.3 billion CBK lifeline support.
But in the period to December last year, SBM Bank Kenya revealed that the CBK offered it Sh2.5 billion as liquidity support and Sh6.6 billion in short-term repo facilities secured by land parcels and Sh8.5 billion government securities.
"The bank assumed Sh2.8 billion from Fidelity Commercial Bank being an amount borrowed from Central Bank of Kenya under liquidity support framework granted prior to 2017. The amount was partly secured by two properties belonging to the group," SBM’s annual report reads.
The CBK extends loans to banks through the repo (repurchase agreement) market where banks sell short-term papers to the regulator with a promise to buy them back later or discounted Treasury bills.
However, banks are never too eager to take money from the central bank, preferring other channels like taking deposits from each other.
National Bank had taken Sh6.9 billion from the CBK in March and cleared the balance by June while Credit Bank held Sh499.6 million CBK deposits in December, which was cleared by March.
Spire Bank had Sh1.2 billion CBK deposits by March along with Consolidated Bank (Sh1.5 billion) and Development Bank (Sh3 billion).
SBM Bank Kenya sent home scores of workers in December last year in a mass layoff after failing to reach its targeted number under the voluntary exit window in October.
The bank is also being pursued by the taxman who won a tribunal dispute ordering the lender to pay Sh400 million in taxes and penalties on a Sh9.6 billion interest-free loan from the CBK taken during the purchase of collapsed Chase Bank assets.
SBM has appealed the decision of the tax appeals tribunal at the High Court. The State Bank of Mauritius launched operations in Kenya in 2017 when the Indian Ocean Island banker bought tier-three lender Fidelity with 14 branches for Sh1.
According to Fidelity’s suit, SBM had sought to make an entry in Kenya but was locked out due to a moratorium on licensing imposed by the CBK in 2015.
When Fidelity sought a bailout from the CBK after running into financial difficulties the regulator linked them to a senior partner of an accounting firm that was acting as a broker for SBM.
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