Family Bank seeks Sh5bn loan to boost lending arm

A Family Bank branch in Nairobi. The bank is in talks with three international lenders for a Sh5 billion loan to support its lending. The money will also be used to fund the bank’s growth strategy that seeks to place it in the top-tier league of lenders by 2017. PHOTO | FILE 

In Summary

• African Development Bank and European Investment Bank will each provide Sh2 billion with the balance to be raised by Oikocredit International, a worldwide cooperative and social investor.
• The bank is pegging its growth on its mobile banking platform, PesaPap and an expansion push where it has lined up 10 new branches for opening this year to bring the total to 92. Two of these are already in operation in Migori and Nairobi’s Embakasi.
• Until 2011, the heavy concentration on the micro-market seemed not to be the best strategy. A new model had to be crafted to include other lucrative revenue streams.

By EDWIN OKOTH
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Family Bank is in talks with three international lenders for a Sh5 billion loan to support its lending.

The money will also be used to fund the bank’s growth strategy that seeks to place it in the top-tier league of lenders by 2017.

The lender, fresh from 46 per cent profit growth last year, is in talks with the European Investment Bank, African Development Bank, Oikocredit International for the loan that is expected by the end of the third quarter.

African Development Bank and European Investment Bank will each provide Sh2 billion with the balance to be raised by Oikocredit International, a worldwide cooperative and social investor.

Chief executive Peter Munyiri said the ability to attract international lenders is evidence of the bank’s strong balance sheet.

“Last year, we received a Sh2 billion facility from European Investment Bank to support our SME lending and this is a demonstration of how well-positioned our balance sheet and the future of the bank is,” said Mr Munyiri in an interview.

International loans are preferred by banks as they are priced preferentially — mostly based on the London Interbank Offer Rate (Libor) — and easier to structure.

ALTERNATIVE CHANNELS

Family Bank also successfully raised Sh3 billion through a rights issue to beef up its capital position in line with  Central Bank of Kenya’s  new rule that requires the banking industry to be well-cushioned against potential market shocks such as bad loans.

Family Bank has set itself an ambitious growth target that would propel it to be among the top-tier lenders by 2017.

“I think we are yet to catch up with our rightful height. Our plan is to grow at a faster rate than even the industry,” said Mr Munyiri.

Family Bank currently has a market share of 1.62 per cent, placing it at number 17 out 44 banks. This is according to Central Bank of Kenya’s 2013 annual banking supervision report.

The lender posted 46 per cent increase in net profit to Sh1.81 billion for the financial year ended December 2014 with revenue growing by 35 per cent to Sh9.7 billion.

The bank is pegging its growth on its mobile banking platform, PesaPap and an expansion push where it has lined up 10 new branches for opening this year to bring the total to 92. Two of these are already in operation in Migori and Nairobi’s Embakasi.

Alternative delivery channels have turned into a key source of revenue for banks though provision of non-funded income while greatly reducing their cost-to-income ratios — a key measure of any bank’s performance.

“We are going heavy on the so-called alternative delivery channels like Internet banking, mobile banking as well as investment in ATMs,” Mr Munyiri said.

By the end of 2016, Mr Munyiri says, the branch network would be 100, enough to place the financial institution among the big lenders.

To be a top-tier lender means that Family Bank should have an asset base of at least Sh100 billion. It currently stands at Sh62 billion.

“This calls for an increase in customer numbers, branch network and infrastructure as well as increase in our lending,” he said. The current customer base is 1.6 million.

REVENUE STREAMS

Over the last five years, Family Bank has been steadily growing in all key metrics that measure a bank’s growth.

At the end of 2009 for instance, the bank posted a profit before tax of Sh343 million. But in 2014, the same closed at Sh2.6 billion.

Net loans and advances in 2009 stood at Sh7.7 billion with the same rising to Sh37.9 billion five years down the line.

“No one grants you market share in this industry, you have to be aggressive and strategic enough to take it from competition,” said Mr Munyiri, who joined the bank in 2011 said.

The bank started in 1984 as Family Building Society mainly targeting the mass market which had been ignored by the mainstream banks.

Until 2011, the heavy concentration on the micro-market seemed not to be the best strategy. A new model had to be crafted to include other lucrative revenue streams.

“We considered that at 47 branches by then (2011) we were not maximally utilising our infrastructure. There was a heavy concentration on one segment,” he said.

The bank created other segments such as treasury, trade finance, institutional and co-operate banking, retail and SME in its multi-pronged approach to capture a good  market share.

PERFORMANCE

Family Bank in numbers

Sh62 billion — The value of the bank’s assets. It seeks to increase this to at least Sh100 billion in order to be classified as a top-tier lender.

Sh9.7 billion — The bank’s revenue for the financial ended December 2014. This was 35 per cent growth.

Sh37.9 billion — Net loans and advances last year, up from Sh7.7 billion in 2009.

17 — Position of Family Bank out of 44 banks in the country. This is based on its 1.62 per cent market share.

100 — Number of branches the bank projects to have by the end of 2016 from the present 92. This will put it in the league of big lenders in the country.