First Community Bank targets to raise Sh1.5bn capital

Money Markets

First Community Bank general manger Omar Sheikh at a media briefing in Nairobi on August 21. PHOTO | SALATON NJAU 

By John Gachiri

In Summary

• The fully-fledged Islamic bank said it has begun a recapitalisation plan that will make it compliant with CBK guidelines by year-end.
• General manager Omar Sheikh said the bank is still looking at various means of raising the money.
• CBK is set to increase the minimum ratio to 14.5 per cent by the end of this year.

First Community Bank (FCB) plans to tap up to Sh1.5 billion for meeting new Central Bank of Kenya (CBK) capital rules.

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• First Community Bank targets to raise Sh1.5bn capital

The fully-fledged Islamic bank said it has begun a recapitalisation plan that will make it compliant with CBK guidelines by year-end.
General manager Omar Sheikh said the bank is still looking at various means of raising the money.

“For a start we are looking for about Sh1 billion to Sh1.5 billion,” said Mr Sheikh at a briefing on Thursday.

The bank has a capital base of Sh1.2 billion.

He added that subordinated debt (a capital borrowing) option is one of the means that can help FCB raise up to Sh3 billion in additional capital.

The bank needs to increase its capital to meet CBK’s new requirements and improve its present statutory capital ratios that have been stretched after expansion.

As at the end of March, FCB’s capital stood at 10.36 per cent of its total risk-weighted assets, which is 1.64 per cent below CBK’s 12 per cent minimum.

CBK is set to increase the minimum ratio to 14.5 per cent by the end of this year.

Analysts said FCB as a fully-fledged Islamic bank can go for a rights issue or get a strategic partner such as a private equity fund as long as the investors do not deal in businesses considered haram (unclean) such as alcohol, gambling, mainstream banking and tobacco.

“In regard to subordinated debt, as per Islamic finance, this debt would have to be structured in the form of Sukuk (Islamic bonds). Sukuk are structured to comply with Islamic law, which, for example, bars interest.

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“Instead, such bonds make coupon-style payments derived from underlying assets,” said Adnan Ganiwalla, a unit trust manager at Genghis Capital.

The bank, which begun operations in 2008, is owned by local and regional businessmen including Hassan Varvani who is also the bank’s chairman, Amir Nahdi – a Tanzanian businessman – and Nairobi Law Monthly publisher lawyer Ahmednasir Abdullahi.

Mr Omar said the bank is undertaking an expansion strategy that will see it increase its branch network to 21 from 17 while agencies are expected to increase to 340 from 147.

As of July the bank had an asset base of Sh12.5 billion and some 100,000 customers.