Pakistan bank set to acquire Kenya’s Middle East Bank

Pakistan’s MCB Bank is in talks to buy Kenya’s small lender Middle East Bank. [PHOTO: COURTESY/STANDARD

By James Anyanzwa

Pakistan’s MCB Bank is on the verge of acquiring Kenya’s Middle East Bank at undisclosed fee in a development bound to bolster intense competition for deposits among Kenya’s big banks.

This comes after completion of due diligence work on the Kenyan lender, which kicked off in mid November last year.

Sources revealed that a deal has been reached for Pakistan’s fourth largest bank to make an entry into the Kenyan banking market through the acquisition of one of Kenya’s small banks.

The Pakistan bank reportedly owns Sh612 billion worth of assets, more than Kenya’s largest lender by assets, which is KCB’s Sh385 billion.

The bank also operates in Sri Lanka and has indirect presence in Dubai, Bahrain, Azerbaijan and Hong Kong. It deals both in retail and corporate business.

“The buyer and the seller have already agreed but there is still a lot of formalities to be done,” the source said.

Contacted for comment Middle East Bank Kenya Ltd managing director Dhirendra Rana confirmed that negotiations on the proposed acquisition are ongoing but declined to divulge more details saying he is bound by confidentiality agreement.

“I’m not in a position to confirm the details of this transaction. There are on-going negotiations but we have not received any approvals yet. We have also not convened any shareholders’ meeting to approve the transaction and until such a time we get the approvals I’m bound by the confidentiality agreement not to disclose anything,” Mr Rana told the Weekend Business.

Core capital

Middle East Bank (MEB), which is headquartered in Nairobi’s Milimani area, has only four branches in Nairobi and Mombasa.

The bank’s total assets for the nine months period to September 31, 2013 hovered at a measly Sh5.86 billion against total liabilities of Sh4.7 billion.

Net loans and advances to customers stood at Sh3.23 billion compared with Sh2.95 billion in a similar period the previous year.

Loan loss provision increased to Sh26.13 million from Sh17.77 million while gross non-performing loans and advances increased to Sh510 million from Sh71.7 million.

MCB’s acquisition of the Kenyan lender is part of the major realignments that begun taking shape in the banking landscape as Central Bank’s new capital requirements weigh heavily on small players.

Apart from banks having to maintain minimum core capital of Sh1 billion (effective from 31 December 2012 as per the Banking Act), they will also have to observe new capital ratios under the new guidelines. The new guidelines introduce a requirement for a capital conservation buffer of 2.5 per cent over and above the existing core capital and total capital ratios.

 This has an impact of increasing minimum core capital from 8 per cent to 10.5 per cent and total capital from 12 per cent to 14.5 per cent. In addition, the computation of risk-weighted assets, which is currently based only on credit risk, will incorporate a charge for market risk and operational risk.

Initially CBK had given a timeline of 18 months to comply with the new capital requirements, but this has now been revised to 24 months, implying January 1, 2015 for the 2.5 per cent conservation buffer and January 1, 2014 for the market risk charges to capital.

 The latest has seen some small banks merge while others offer themselves for grabs by foreign lenders.

The move is seen as a strategy to build strong financial muscles to survive the growing competition as well as comply with the new capital requirements that appear to have destabilized the small banks in the industry.

Nigeria’s Guaranty Trust Bank acquired 70 per cent of Fina Bank at a cost of $100 million.

In June 2010, Equatorial Commercial Bank merged with Southern Credit Banking Corporation, creating a new enlarged bank under the Equatorial Commercial Bank brand.