Oriental Bank seeks strategic investors in growth plans

Money Markets

 

Oriental Bank plans to issue 50m new shares worth Sh1bn to raise cash for growth. Photo/FILE 

By GEORGE NGIGI

In Summary

• Oriental Commercial Bank is creating 50 million new shares worth Sh1 billion.

inShare

Small-sized lender Oriental Commercial Bank is seeking strategic investors to support its expansion plans through additional capital.

The bank is said to have attracted the attention of several investors, including some from Europe, and is now seeking approval from its shareholders to narrow down the search.

“To consider and authorise the board of directors to negotiate and enter into strategic arrangements with potential investors on behalf of the bank,” said company secretary Joseph Kamau in a proposed resolution to shareholders.

Sources said the lender was looking at increasing its capital base so as to book big business. Banks cannot lend more than a quarter of their core capital to a single borrower. This limits Oriental Bank to lending Sh325 to a large borrower.

The bank’s plan to make a Sh200 million rights issue in the last two years has not materialised. Oriental Bank also plans to issue new shares in readiness to accommodate new investors who may want to have equity in the company.

The lender is creating 50 million new shares worth Sh1 billion.

Small banks have been counselled to embrace consolidation in order to raise their capital levels and also boost their price when selling stake.

READ: Banks set for new capital drive after bountiful year

Ashif Kassam, managing director of audit firm RSM Ashvir, said the acquisition price is usually a multiple of net profit or asset base which would be boosted by consolidation.

Equatorial Commercial Bank has been in the market for strategic investors since 2012.

Its shareholders had to inject new capital into the bank after plans to bring on board the investors fell through in what a former executive attributed to managerial interference by main owner, Naushad Merali, according to court filings.

Pakistan-based MCB Bank has declared interest in entering the Kenyan market through acquisition of a small lender. MCB has already received authorisation from Pakistan authorities to carry out due diligence on the lender whom it did not disclose but stated it was a small lender.

Nigeria-based Guaranty Bank bought a 70 per cent stake in Fina Bank at Sh8.6 billion. Small lenders have been seeking deep-pocketed partners to help them comply with higher capital requirements put in place by the Central Bank.

Private equity firms have also been seeking entry in Kenya’s banking sector due to the high returns. Kenyan banks enjoy some of the widest interest spreads in the world which help them post impressive profits.

Some of the private equity funds that have invested in the sector are French-based Proparco and Amethis Capital.