Somalia lender to acquire struggling First Community Bank

By: Business Daily

A Mogadishu-based lender that has been in operation for under 10 years is set to acquire a controlling stake in First Community Bank (FCB), whose capital is below the required minimum.

Premier Bank Limited (Somalia) has received approval from the Competition Authority of Kenya (CAK) to acquire a 62.5 percent stake in FCB in a deal whose value is yet to be made public.

“Pursuant to the provisions of section 46 (6) (a) (ii) of the Competition Act, 2010, it is notified for general information that in exercise of the powers conferred upon the CAK by section 46 (1) of the Competition Act, the CAK has authorised the implementation of the proposed merger as set out herein,” said Adano Wario, acting Director-General at CAK.

The deal, which will require Central Bank of Kenya (CBK) approval, will help support FCB, whose core capital had dropped to Sh924 million against the required minimum of Sh1 billion.

The reduced capital left FCB’s core capital to total risk-weighted assets ratio at 7.1 percent compared to the required minimum of 10.5 percent. The total capital to total risk-weighted assets ratio was at 11 percent against the allowed minimum of 14.5 percent.

Shariah-compliant

Premier Bank is a privately-owned Sharia-compliant commercial bank incorporated in Somalia in 2013 and licensed by the Central Bank of Somalia in 2014, making it a match for FCB.

FCB received a CBK licence in 2007 and commenced official operations on June 1, 2008, as the first fully-fledged Shariah-compliant bank in Kenya.

The lender was in October last year faced with a bank run triggered by what it said was a system hitch that hit its operations.

Customers who lined up to draw their cash claimed the bank was only permitting withdrawals of less than Sh10,000 a day and had placed curbs on cheque clearance.

The bank’s problems became public after it said it was experiencing system disruptions that affected most of its services, creating a backlog. This triggered panic withdrawals raising fears that it was headed for a bank run.

The tier-three lender, with 0.38 per cent market share, ranks 27 among Kenya’s 39 banks and had Sh18.2 billion in deposits as at September last year compared with June when the figure stood at Sh22.2 billion.

Bank acquisitions

FCB’s nine-month profit to September 2022 dropped from Sh224 million to Sh205.67 million as operating expenses shot up.

The past 10 years have witnessed a rise in bank deals in the Kenyan market, with CBK supporting the move as a way of injecting stability.

Equity Group recently acquired Spire Bank from Mwalimu Sacco after acquiring a controlling stake in Banque Commerciale Du Congo in November 2019.

The Equity deal came in the same week Egypt’s Commercial International Bank (CIB) announced it was taking 49 percent stake in Mayfair Bank to add to the 51 percent stake it bought in April 2020.

Nigeria’s Access Bank in February 2020 acquired Transnational Bank and was on course to acquire Sidian Bank before the deal collapsed.

KCB Group in November 2020 acquired ABC Tanzania and followed it up with Banque Populaire du Rwanda and DRC’s Trust Merchant Bank in August 2021 and 2022, respectively. It had also acquired the National Bank of Kenya in September 2019.

I&M Bank went for Orient Bank Uganda in April 2021, following up on the June 2016 deal when it acquired Kenyan lender Giro Commercial Bank.

Co-operative Bank of Kenya acquired Jamii Bora in August 2020.

NIC and CBA merged into NCBA Group in 2019, while SBM Bank acquired Chase Bank in 2018. SBM had, in 2016, acquired Fidelity Commercial Bank.

Other deals included DTB acquiring Habib Bank Kenya in 2017 and Oriental Commercial Bank being acquired by Bank M Tanzania in 2016.

Nigerian Guarantee Trust Bank 2013 acquired Fina Bank, while investment firm Centum acquired K-Rep Bank (now Sidian) in 2014.