CRDB mulls rights issue to fund expansion

CRDB Bank, the largest bank in term of balance sheet, plans to raise its capital through rights issue for its ambitious local and regional expansion drive.

Despite controlling less than 20 per cent of market’s share, its capital ratio is not adequate in comparison to its growth strategy and branch optimisations.

CRDB’s Chief Executive Officer, Dr Charles Kimei, said another reason of raising capital follows the regulator’s decision to increase core capital and total capital adequacy ratio by 2.5 per cent.

“Though we (CRDB) have a strong capital position at the moment, we still need to raise an extra capital to sustain our growth and profitability in the future,” Dr Kimei said.

The CEO was presenting 2014 financials before investors, shareholders and financial analysts on a yearly CRDB Analysts Day.

The bank has resolved to raise additional equity capital through the right issue subsequent to a recommendation made by its board in March.

The rights offer, if all go as planned, is figured-out to be conducted in June after receiving blessing from relevant authorities -- DSE and CMSA.

Dr Kimei said the rights issues ratio will be five to one -- meaning each five shares have the right of one, at a price, normal at discount, to be determined after its annual general meeting later this month.

According to the CRDB, subject to the provision of Article 19(1) of Article of Association of the bank, issue up to 435,306,432 new ordinary shares by the way of rights.

“The right offer is anticipated to be fully subscribed by a strategic investor(s) who will buy the remaining shares if current shareholders turn down the offer,” Dr Kimei said.

Last year the bank’s regional expansion programme saw it increase the number of branches from two to four in Bujumbura, Burundi, where total deposits went up to 28.89bn/- from 15.97bn/- of previous year.

Dr Kimei said Burundi subsidiary broke-even this March being two years from commencing operations and is expected to make profit this year depending on local condition --especially political situation.

The bank also plans to open another subsidiary in Lubumbashi, DRC. Dhow Financial CEO, Prof Mohamed Warsame said beside the regulatory directive, the rights offer comes at the right time as the bank expansion could not be implemented without injection of fresh capital.

“CRDB now needs capital to effect Bank of Tanzania changes,” Prof Warsame said, “as growth is driven by capital.” The rights issue will prop-up the profitability margin in near featureÉ it will not be seen in this year but in the years to come,” the finance professor, who was analysing the bank’s new move, he said.

In the next five years, Prof Warsame said, the bank net profit projects, should expansion go as planned, will hit 288bn/- in 2019 -- pushed up by net interest income of 624.87bn/-.

The bank projects to bear the fact that in 2010 net profit was 47.24bn/- but rose considerably to 95.64bn/- in 2014.