Somalia lender pays Sh2.8bn for stake in First Community Bank

First Community Bank along Kigali Road, Nairobi. FILE PHOTO | DIANA NGILA | NMG

A Mogadishu-based bank will pay Sh2.8 billion for a controlling stake in the First Community Bank (FCB) in a deal designed to shore up the capital levels of the Kenyan lender that are in breach of regulation.

Premier Bank Limited (Somalia), which has been in operation for under 10 years, will be offered new 10.8 million shares in exchange for a 62.5 percent stake, said a transaction advisor who participated in the deal and who spoke to the Business Daily on condition of anonymity.

The cash injection will boost the financial health of FCB, whose capital strength has since 2018 breached levels set by the Central Bank of Kenya (CBK).

Its capital to total risk-weighted assets ratio—which measures the minimum amount of capital available to protect depositors— was at 11 percent against the allowed minimum of 14.5 percent.

The core capital to total risk-weighted assets ratio stood at 7.1 percent compared to the required minimum of 10.5 percent.

Read: Somalia lender to acquire struggling First Community Bank

The stake of the current FCB shareholders will be squeezed into a 37.5 percent shareholding once the deal is completed.

The Competition Authority of Kenya approved the deal last Friday, offering an opportunity for the bank whose top owners include Abdikadir Hussein Mohamed with a 24.98 percent stake to strengthen its capital and expand lending.

“Pursuant to the provisions of section 46 (6) (a) (ii) of the Competition Act, 2010, it is notified for general information that in the 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 the CAK.

FCB commenced operations on June 1, 2008 as the first fully-fledged Shariah-compliant bank in Kenya but has been in breach of capital ratios for the past five years.

Other top investors in the line to benefit from the transaction are Shaffi Mohamed Hussein Bachelani (17.09 percent) and Ahmed Mohamed Bachelani (12.4 percent).

Another 12.4 percent FCB stake is in the hands of Opportunity Logistics Services Limited while the remaining shareholding (33.13 percent) is spread out in the hands of other investors.

The bank had between 2018 and September 2021 struggled with capital levels below Sh1 billion, at some point dipping to Sh617 million in December 2019, before beginning to rise.

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. In October last year, it faced 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, triggering a services backlog.

This prompted panic withdrawals raising fears that it was headed for a bank run. The tier three lender with 0.38 percent market share and that ranks 27 among Kenya’s 39 banks had Sh18.2 billion in deposits as of September last year compared with June when the figure stood at Sh22.2 billion.

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

Fully fledged Shariah-compliant banks in Kenya include DIB Bank Kenya Limited, which was incorporated in 2014 as a fully owned subsidiary of Dubai Islamic Bank, and Gulf African Bank which became operational in January 2008.

The past decade has witnessed a rise in bank deals in the Kenyan market, with the CBK supporting the move as a way of injecting stability via the purchase of struggling lenders.

Equity Group recently acquired Spire Bank from Mwalimu Sacco on the back of taking 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 a 49 percent stake in Mayfair Bank, to add to the 51 percent it bought in April 2020.

Read: First Community in crisis as ‘hitch’ sparks bank run

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 September 2019 acquired the National Bank of Kenya while I&M Bank in June 2016 took over Giro Commercial Bank.

Cooperative Bank of Kenya acquired Jamii Bora in August 2020.

SBM, which had in 2016 acquired Fidelity Commercial Bank, took over Chase Bank in 2018.

Other deals saw DTB acquire Habib Bank Kenya in 2017 and Oriental Commercial Bank acquired by M Bank in 2016.

Guarantee Trust Bank in 2013 acquired Fina Bank while Centum acquired K-Rep Bank in 2014.

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