Once ailing banks get new lease of life from the industry's 'big boys'

Erstwhile struggling banks are now finding strength under the wings of their new owners following acquisitions that gave them access to billions of shillings.

Lenders, including Jamii Bora Bank, National Bank of Kenya (NBK), Transnational Bank (now Access Bank) and Mayfair Bank, which were struggling to keep their heads above the water are now swimming in cash.

Others, which were acquired by non-banks, such as K-Rep Bank (now trading as Sidian Bank) are also finding a new sense of direction.

The turn of events affirms the Central Bank of Kenya’s (CBK) continued call for consolidation in the sector to restore stability.

Jamii Bora Bank had, for instance, been on a five-year streak of losses before the Co-operative Bank of Kenya in 2020 acquired a 90 per cent stake in the lender, introduced a new management team and rebranded it to Kingdom Bank.

The deal helped lift the lender from the ashes at a time its initial shareholders were facing the prospect of losing their entire capital.

Jamii Bora was under-capitalised and relied on regulatory forbearance to keep operating even as its brand value diminished.

The lender in 2020 cut its loss to Sh169 million from the Sh1.02 billion loss it had posted in 2019 before the Co-op deal.

Kingdom’s management had last year projected a Sh300 million pre-tax profit, saying that there had been a “significant improvement in performance due to association of the subsidiary with Co-operative Bank.”

It, however, surpassed this target, with the pre-tax and net profit coming in at Sh549.55 million and Sh519.76 million respectively.

Kingdom Bank changed its colours from red to green just like Co-op and took up a new tag line “we are also you,” perhaps in reference to its association with Co-op Bank’s “we are you.”

NBK has also found a new lease of life under the wings of KCB Group, which acquired the lender’s full stake but opted to maintain the brand.

From a net loss of Sh302.27 million and in a capital-constrained position, the lender has been on a recovery path thanks to KCB’s capital injection and the benefits of associating with the tier I bank.

Its net profit last year hit Sh1.07 billion from Sh202.1 million in 2020, pointing to the recovery for the lender that was struggling with loan defaults and mismanagement.

Shareholders of NBK were allotted shares in KCB, and this has given them exposure to the bigger bank’s diversified operations.

Transnational Bank, now Access Bank Kenya, which had also gone for three straight years in losses also emerged from the ashes last year with a net profit of Sh135.96 million.

Access Bank, the top bank in Nigeria, acquired a 99.98 per cent stake in Transnational Bank and paid Sh1.21 billion in cash in early 2020 for the deal valued at Sh1.56 billion.

Mayfair Bank, now trading as Mayfair CIB Bank, has also found a new sense of direction after the Commercial International Bank (CIB) Egypt acquired a shareholding stake of 51 per cent.

The lender last year overcame a Sh379.27 million loss in 2020 to post a Sh96.69 million net profit—the first profit since its licensing.

Mayfair had been posting losses between 2017 and 2020. CIB acquired a 51 per cent stake in Mayfair in May 2020 and injected $35 million (Sh4.04 billion) into the tier III lender.

“The bank reported improved revenues driven by increase in net interest income by 76 per cent to close at Sh691 million. The impact of growth in revenues resulted in the bank breaking even,” said the lender. Besides access to large pools of capital and liquidity, the acquired banks have benefited from their parent companies’ brand and technological infrastructure.

The back to back collapse of Chase Bank, Imperial Bank and Dubai Bank had spooked customers, leading to a dip in confidence levels in banks perceived as “small”.

Small lenders that were facing capital constraints and a record of losses have, however, used the acquisitions by large banks to repair their brands.

The shareholders have also enjoyed growth in their funds without having to raise any additional capital.

Kingdom Bank’s shareholder funds have, for instance, grown to Sh1.9 billion from Sh1.2 billion in 2019.

The lender was able to get a Sh20.96 billion loan from CBK in 2020 to rescue it from a liquidity crunch and fading customer confidence.

The loan was guaranteed by Co-op Bank, sparing the initial investors from the need to fundraise to revive the lender.

NBK, Access Bank, and Mayfair CIB Bank have all also benefited from fresh capital injections from their acquirers, giving them the ability to strengthen their capital and liquidity positions and grow their loan books.

Such is the relief that Spire Bank, which is loss-making and in breach of all liquidity and capital ratios, is hoping for through an acquisition deal.

The lender has for the past four years been in search of a buyer. Its owner, Mwalimu National Sacco, is desperate to offload the entire stake and retreat to its core business of running a Sacco.

There have been several suitors for the lender, which now requires over Sh4 billion to restore its capital position to the required minimum.

Some brands have been obscured after acquisition. For instance, I&M Bank acquired Giro Commercial Bank in 2016 and added it to its business, while DTB did the same with Habib Bank Kenya in 2017.

The Kenyan banking sector has also witnessed acquisitions from non-banking institutions.

For instance, Centum through its wholly-owned subsidiary Bakki Holdico Ltd acquired a majority stake in K-Rep Bank and renamed it Spire Bank, setting the lender on a growth path.

Oiko Credit acquired a 22.8 per cent stake in Credit Bank, while AfricInvest Azure went for a 24.2 per cent stake in Prime Bank.

Other foreign lenders have entered the Kenyan market by acquiring erstwhile struggling local banks and renaming them, pumping in money to launch and grow their operations.

Guarantee Trust Bank in 2013 acquired a majority stake in Fina Bank Group and renamed it GT Bank.

SBM Holdings of Mauritius, on the other hand, entered Kenya by fully acquiring Fidelity Commercial Bank before following it up with cherry-picking 75 per cent of Chase Bank.

SBM Bank Kenya has since been on a growth trajectory, taking its branch count to 41 with customer deposits valued at Sh60 billion at the end of last year.