How once shaky banks have found steady rhythm after acquisitions

Spire Bank

Spire Bank branch on Koinange Street in Nairobi on May 29, 2020. 

Photo credit: Dennis Onsongo | Nation Media Group

All that could have ever gone wrong for a bank seemed to have happened for Spire Bank. Yet the lender held on as though inviting another moment of Chase Bank whose collapse came gradually, then suddenly, with a thud.

The then Spire Bank chairman Willian Rahedi mid-February last year reflected on the difficult moments. He thanked Equity Group for having given the lender a “dignified exit” through a deal that saw the giant lender take over all the deposits and loans in all 10 branches of Spire.

“We could have woken up one morning and found padlocks around our bank doors but Equity came along and allowed us to finish in a dignified way,” said Mr Rahedi.

Customers who had deposits in Dubai Bank, Imperial Bank, and Chase Bank know too well the feeling of waking up to padlocks on doors of their banks and a Central Bank of Kenya (CBK) statement confirming their worst fears.

But the banking regulator’s shift in strategy from the era of padlocks to that of arranging marriages of convenience between struggling and strong banks is now bearing fruit, helping the once wobbly lenders to find a new rhythm.

The latest financial results for the year ended December 2023 show that once-struggling banks such as Jamii Bora, now trading as Kingdom Bank, Transnational Bank (now Access Bank) and CIB Kenya Limited (formerly Mayfair Bank) and Premier Bank (formerly First Community Bank) are no longer struggling to keep their heads above the water.

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. Sidian recently attracted another set of investors, signaling its growing attractiveness.

The association with stable banks or deep-pocketed investors has increased the confidence of customers in these banks, helping them shed the risk of bank runs that, for instance, which brought down Chase Bank.

When First Community Bank's (FCB) core capital, in just three months, dropped from Sh1.65 billion to negative Sh331 million at the end of December 2022, it left it in search of an investor. The drop in capital came barely a year after customers made panic withdrawals that shrunk deposits by 36 per cent.

The Shariah-compliant bank found Mogadishu’s Premier Bank Limited (Somalia) a perfect fit to sell to acquire a controlling stake (62.5 per cent) for Sh2.8 billion. From a Sh1 billion breach in core capital in 2022, the lender now has Sh1.87 billion more than the required minimum of Sh1 billion, placing it on a path to expand its loan book and come out of losses.

For Jamii Bora Bank, whose five-year streak of losses had eroded its capital, it has swung back into profits thanks to the 2020 deal that saw the Co-operative Bank of Kenya acquire a 90 per cent stake in the lender.

Co-op Bank introduced a new management team and rebranded Jamii Bora to Kingdom Bank, and even changed the brand colour from red to green as it picked the small lender from the ashes.

Kingdom’s “we are also you” tagline, donned in green colours just as Co-op’s “we are you”, symbolised the union that was solemnised by the CBK, which gave Kingdom a Sh20 billion interest-free loan with a grace period of three years.

From a loss of Sh1.02 billion in 2019, the Kingdom’s fortunes turned around almost immediately, with a narrowed loss of Sh10.2 million a year after the acquisition by Co-op.

Now Kingdom has gone three years with a profit. The lender last year posted a Sh655.16 million net profit from Sh930.17 million posted a year earlier, weighed down by a higher tax liability. At a pre-tax level, earnings were 36.4 per cent up to Sh1.08 billion.

Transnational Bank, now Access Bank Kenya, which had endured three straight years of losses, also continues to get better.

Access Bank, the top bank in Nigeria, in early 2020 acquired a 99.98 per cent stake in Transnational Bank and rebranded it Access Bank Kenya. The lender in 2021 emerged with a net profit of Sh135.96 million before being hit with back-to-back losses mainly due to higher operating expenses.

But Access Bank Group is now on the verge of acquiring the National Bank of Kenya (NBK) from the KCB Group in a deal that is estimated at Sh13.2 billion. The Nigerian lender is exuding confidence about Kenya and East Africa and believes will turn around the fortunes of NBK whose recovery has run into the headwinds of legacy issues including court cases.

Mayfair Bank, now trading as CIB Kenya, has also found a new sense of direction after the Commercial International Bank (CIB) Egypt acquired a shareholding stake of 51 per cent and then snapped up the remaining 49 per cent a year later.

The lender in 2021 overcame a Sh379.27 million loss in 2020 to post a Sh96.69 million net profit—the first profit since its licensing. It wrapped up last year with a Sh0.62 million net profit, down from the Sh422.8 million net profit posted in the preceding year, majorly weighed down by higher operating costs.

“The bank intends to enhance its operational and technological capabilities by investing in new systems, solutions, and human resources,” said CIB Kenya.

Additionally, it plans to open one more branch this year and deepen investments in digital channels, enabling it to reach a broader target market with an extended array of products and services.

Nearly all the acquired banks have benefited from fresh capital injections from their buyers giving them the ability to strengthen their capital and liquidity positions and grow their loan books. Such injections have helped these lenders become more stable.

From November 2013 when GT Bank acquired a 70 per cent stake in Fina Bank Group and renamed it GT Bank Kenya, the Kenyan market has been awash with deals in the banking sector over the last decade.

Centum Investments acquired a controlling stake in K-REP Bank, now trading as Sidian in July 2014. Mwalimu Sacco went to the market the following year and acquired Equatorial Commercial Bank which became Spire Bank.

I&M Holdings in 2016 acquired Giro Commercial Bank in mid-2016, followed by other deals including SBM Holdings in November 2016 acquiring Fidelity Commercial Bank and Diamond Trust Bank snapping Habib Bank the following year. SBM was back in 2018, with the acquisition of certain assets and liabilities of Chase Bank.

The deals have changed the financial sector landscape by attracting new capital and investors while at the same time injecting stability.

CBK is proposing an upward review of capital levels, in a move that could trigger another round of mergers and acquisitions. Stanbic Holdings’ parent firm, Standard Bank Group, has made it clear that it wants to acquire a lender in Kenya by 2025 to catalyse its growth.