KCB bets on new holding arm for growth

One of the KCB branches. High Court Judge Eric Ogola, in his judgment dated June 25, 2014, declined to grant orders that two defaulters pay the bank amounts which would have in effect exceeded the principal when their loan became non-performing, citing provisions of the Act. FILE PHOTO | NATION MEDIA GROUP

What you need to know:

  • The bank shareholders approved the plan during their annual general meeting.
  • All KCB’s non-banking businesses are expected to be run by the holding company.

KCB Group is banking on the set up of a holding company to propel its regional growth.

The bank shareholders approved the plan during their annual general meeting.

The lender is now waiting for the green light from the Capital Markets Authority (CMA) and the Central Bank to launch the holding company.

East Africa’s largest lender by market capitalisation will be joining its rival, Equity Bank, which is also awaiting a similar approval before launching a holding company.

“We got our shareholder’s nod on May 9 but we have to get approval from CMA, Nairobi Securities Exchange and the Central Bank before proceeding,” said KCB’s chief executive Joshua Oigara at a breakfast meeting with journalists.

The holding company will oversee KCB Kenya and its regional units in Uganda, Tanzania, Rwanda, Burundi and South Sudan.

Kenya’s largest bank also has an investment banking arm called KCB Capital.

Already, listed mid-tier lender I&M Bank Group operates under a holding company —I&M Holdings Ltd — which runs subsidiaries in Mauritius, Kenya Tanzania and Rwanda.

The banking business regulator, CBK, has developed guidelines to allow special entities to own more than 25 per cent of the share capital of a bank under its supervision.

The amendment was passed under the Finance Act of 2012 to allow banks to reorganise their structures and spread risks associated with subsidiaries and related companies.

The rules also provide guidance on the acquisition of an institution by non-operating holding companies and regulate non-banking activities.

Strategic autonomy

Before the Finance Act 2012 came into place, ownership of above 25 per cent of a bank’s share capital had to be by a State corporation, a banking firm, the government or a parastatal.

A holding company is therefore tasked with offering financial, advisory, accounting, management and information processing services. The CBK is paid Sh500,000 annual fee.

Separating a holding company from a parent institution is said to be advantageous when raising funds for investment or acquisitions.

Mr Oigara said the non-operating holding company would assist KCB group realise “operational and strategic autonomy”.

“It will enhance corporate governance and manage risk while allowing for operational effectiveness and serve as an investment vehicle for investors,” he said.

The enhanced prudential guidelines by the Central Bank are a reflection of the changing banking environment in Kenya and in the region. The guidelines seek to promote a stable industry.

KCB’s Kenya unit contributes 88.5 per cent of the group’s entire business’ profit while the regional arms accounted for 11.5 per cent for the group’s 2013 full-year earnings.

Re-aligning functions

Samuel Makome, who joined the group last year as chief business officer, is set to assume leadership of the holding company once it is formed.

The lender has already ruled out any fresh recruitment for the new entity.

“I do not think we shall be recruiting. The bank has enough personnel and it’s a matter of re-aligning functions,” said group chief operations officer Collins Otiwu.

The lender restructured in 2011, axing its executive team to less than 10 from 22 in a move that resulted in a 42 per cent cut in the top managers’ pay cost.

All KCB’s non-banking businesses are expected to be run by the holding company.