22 November 2016

Kenya: Mauritius SBM Group to Acquire Kenya's Fidelity Bank

Photo: Capital FM
Fidelity Bank.

SBM Group of Mauritius is set to acquire Kenya's Fidelity Commercial Bank subject to regulatory approvals in Kenya and Mauritius.

Central Bank of Kenya says the proposed acquisition will mark the entry of SBM Group into Kenya's banking sector.

SBM Group is the second-largest company listed on the Stock Exchange of Mauritius with an asset base of about Sh417 billion (US$4.2 billion) as at September 30, 2016.

SBM Group's banking arm, SBM Bank (Mauritius) Ltd., is a leading bank in Mauritius with an international footprint in India, Madagascar, and a representative office in Myanmar.

"SBM Group will bring its experience and expertise from Mauritius and other markets, to enhance competitiveness and the resilience of Kenya's banking sector. SBM Group is pursuing an international expansion strategy, and for the African region, it is anchored on Kenya as the entry point for Eastern Africa," CBK says in a statement.

Fidelity Commercial Bank Ltd. (FCBL) commenced operations as a non-bank financial institution in June 1992, and converted into a commercial bank in April 1996.

It was ranked 31 of 41 banks in terms of market share as at December 31, 2015, with a share of 0.39 percent and fourteen branches around the country.

"The transaction is expected to be completed by December 31, 2016, and further updates will be provided as the transaction progresses. CBK welcomes the interest of foreign banks that will contribute to the emergence of a world-class financial sector," the regulator noted.

CBK stopped issuing any new licenses commercial banks last year.

The freeze - which came after two banks were placed under receivership - did not, however, apply to resolutions, amalgamation and acquisitions.

Kenya's banking sector has been facing challenges in the recent past with about three banks now under receivership owing to liquidity crunch and mismanagement.

Further, the new banking law capping interest rates at 4 per cent above Central Bank's lending rate is also set to affect the institutions with larger banks being the greatest beneficiaries.

Britam Asset Managers Research analysts indicate that the recently implemented interest rate capping law is expected to squeeze medium and small banks' margins more than those of large banks, ultimately leading to lower net interest income for the medium and small banks.

READ: Large banks likely to reap more from interest capping law

As a result, large banks will continue to capitalize on their strengths to drive growth in non-interest income, ramping up cross-selling of products to existing clients in order to derive maximum value.

Currently, there are 43 licensed commercial banks and one mortgage finance company with Treasury Cabinet Secretary Henry Rotich on record saying that that the country is overbanked.

Out of the 44 institutions, 31 are locally owned and 13 are foreign owned. The locally owned financial institutions comprise three banks with significant shareholding by the Government and State Corporations,

Rotich has been urging banks to consolidate rather than to compete for small markets.

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