GROWTH

Co-op Bank to inherit Jamii Bora's Uchumi stake in acquisition deal

Jamii Bora invested Sh500 million in struggling Uchumi Supermarket, with another Sh412 million lent to Kenya Airways, which has been on a loss-making streak

In Summary

•Commercial Bank of Africa (now NCBA Group) had initially proposed to acquire the tier III lender at a proposed value of Sh1.4 billion

•The merged entity will have an asset base of more than Sh462 billion, placing it fourth in the country after NCBA’s Sh487 billion asset base

Co-operative Bank of Kenya chief executive Gideon Muriuki during an investor briefing at Intercontinental Hotel on February 28
Co-operative Bank of Kenya chief executive Gideon Muriuki during an investor briefing at Intercontinental Hotel on February 28
Image: Karuga Wa Njuguna

Co-operative Bank of Kenya is set to take up Jamii Bora’s liabilities including its 15.8 per cent stake in Uchumi Supermarket's stock shareholding in a proposed acquisition.

Yesterday, the tier one lender announced plans to take over 100 per cent shareholding in Jamii Bora Bank.

This is set to largely boost Jamii Bora’s operations, which have been suffering due to poor cash liquidity.

 

Jamii Bora invested Sh500 million in struggling Uchumi Supermarket, with another Sh412 million lent to Kenya Airways, which has been on a loss-making streak.

 

The tier three lender’s liquidity ratio stood at negative 11.1 per cent in March 2018, far short of the minimum statutory requirement of 20 per cent.

This means that its ability to meet short-term obligations is significantly limited.

In its last published results, Jamii Bora reduced its net losses to Sh51.2 million in the first quarter of 2018 compared to Sh96.2 million a year earlier.

This, as interest income dropped 36 per cent to Sh264.9 million. Its loan book declined 15.3 per cent to Sh7.9 billion.

“The acquisition will strengthen both institutions leveraging on their respective well established domestic and regional corporate public sector, retail business and the 15 million-member co-operative movement,” Co-op Bank said in a notice.

If successful, the merged entity will have an asset base of more than Sh462 billion, placing it fourth in the country after NCBA’s Sh487 billion asset base.

 
 

KCB and Equity, lead the country’s lending market with assets of Sh714.3 billion and Sh638 billion respectively.

The value of the proposed transaction is yet to be determined as it is still awaiting due diligence by the relevant professional body.

However, Commercial Bank of Africa (now NCBA Group) had initially proposed to acquire the tier III lender at a proposed value of Sh1.4 billion.

The acquisition bid was dropped with CBA instead opting to merge with NIC Bank.

Yesterday, the Central Bank of Kenya welcomed the proposed acquisition, stating the move would help stabilise Kenya’s banking sector.

“CBK welcomes the transaction which will diversify the business models of the two institutions and enhance the stability of the Kenyan banking sector,” said CBK in a statement.

There have been a growing number of mergers and acquisitions in the local banking sector as lenders seek to strengthen their operations.

Other banks that have been acquired in the recent past include National Bank of Kenya, Habib Bank Kenya, Fidelity Commercial Bank, Giro Commercial Bank, Equatorial Commercial Bank, K-Rep Bank and Fina Bank.

The transaction is subject to approvals by the Central Bank, Capital Markets Authority and Competition Authority of Kenya.

If successfully concluded the transaction is likely to lead to a shift in Co-op Banks share price on the Nairobi Securities Exchange.

“Accordingly, shareholders and the investing public are advised to exercise caution when dealing with the Company’s securities,” the lender said.

*Yesterday, Co-op Bank shares grew 4.26 per cent to trade at Sh14.70 from Sh14.10 the previous day.