- Premier Bank Limited Somalia (PBLS) has completed the acquisition of a 62.5% shareholding of First Community Bank Limited (FCB) effective 27th March 2023
- FCB is classified as a Tier 3 bank in Kenya with 18 branches and a market share of 0.3% as of December 2022
- PBLS is the first bank in Somalia to establish a majority-owned banking subsidiary in Kenya
- CBK said that the acquisition will strengthen the trade and investment ties between Kenya and Somalia
The Central Bank of Kenya (CBK) has announced that Premier Bank Limited Somalia (PBLS) has completed the acquisition of a 62.5% shareholding of First Community Bank Limited (FCB) effective 27th March 2023.
The acquisition comes after receiving regulatory approvals from the CBK and the Cabinet Secretary for the National Treasury.
According to CBK, FCB, which has been in operation since June 2008, is classified as a Tier 3 bank in Kenya with 18 branches and a market share of 0.3% as of December 2022. Its acquisition comes when the bank has been struggling to meet regulatory capital adequacy requirements.
“FCB was licensed by CBK to conduct Shariah-compliant banking business on April 29, 2008. The bank has eighteen branches, spread across the country. The bank specialises in the provision of Shariah-compliant banking services to corporate and retail clients. It is categorised as a small bank with a market share of 0.3% as at
December 31, 2022,” CBK said.
During the third quarter of 2022, FCB’s asset base stood at KSh 22.1 billion with net loans coming in at KSh 18.2 billion. Customer deposits came in at KSh 18.2 billion as well, translating to a loan-to-deposit ratio of 100.0%, reflecting the bank’s current inability to amass deposits.
Profits after tax came in at KSh 205.7 million, an 8.2% y/y decline from KSh 224.1 million in a similar quarter in 2021, driven by a faster 15.9% increase in operating expenses to KSh 1.1 billion from KSh 1.0 billion.
Key capital ratios such as the Core capital to deposit liabilities ratio came in at 9.1% in the third quarter of 2022, only 1.1% points above the regulatory limit of 8.0%. The core capital to risk-weighted assets came in at 7.1% in the third quarter of 2022, 3.4% points below the regulatory limit of 10.5%.
Similarly, the Capital adequacy ratio came in at 11.0% in quarter three of 2022, 3.5% points below the regulatory requirement of 14.5%, and 8.0% below the sector average of 19.0% in the same period.
The liquidity ratio came in at 14.5%, 5.5% points below the regulatory requirement of 20.0%. Further, other ratios have also been adverse, such as the asset quality, with the bank’s Non-Performing loan (NPL) ratio coming in at 26.1% in the third quarter of 2022, 12.4% points above the banking sector average of 13.7% during the same period.
Strengthening ties between Kenya and Somalia
On the other hand, PBLS’s business model mainly focuses on retail, small and medium-sized enterprises (SMEs) and corporates.
According to CBK, PBLS is the first bank in Somalia to establish a majority-owned banking subsidiary in Kenya.
“The acquisition will strengthen the trade and investment ties between Kenya and Somalia,” CBK said.
“CBK welcomes this transaction that will diversify and strengthen the resilience of the Kenyan banking sector,” CBK added.
Commenting on the acquisition, Cytonn Investments said that they expect the completed acquisition to boost FCB’s capital adequacy and liquidity ratios to above the minimum statutory requirements and positively impact the bank’s operations.
They added that the acquisition is also a welcome move, as it ensures that the bank’s customer deposits are protected and will bring stability to the bank.
“We expect to see more consolidation activities in Kenya’s banking sector as larger banks with a sufficient capital base take over smaller and weaker banks,” the experts said.
Commercial International Bank acquires Mayfair CIB
In a related story, CBK recently announced the acquisition of 49% of the shareholding of Mayfair CIB Bank Limited (MBL) by Commercial International Bank (Egypt) S.A.E. (CIB) effective January 31, 2023.
The acquisitions followed CBK’s approval on January 23, 2023, under Section 13(4) of the Banking Act and approval by the Cabinet Secretary for the National Treasury and Economic Planning on January 24, 2023.
The transaction followed an earlier acquisition by CIB of 51% shareholding in MBL announced in April 2020.
Subsequently, MBL is now a fully owned (100%) subsidiary of CIB.