Somali lender, Premier Bank, has acquired a 62.5 per cent stake in Kenya’s First Community Bank Limited (FCB).
First Community Bank Limited was licensed in 2008 and is classified as a small bank with a market share of 0.3% as of December 31, 2022.
According to the Central Bank of Kenya, completion of the acquisition will be effective March 27, 2023. Premier Bank will make history as the first Somali bank to own more than half of a banking subsidiary in Kenya.
“The acquisition will strengthen the trade and investment ties between Kenya and Somalia,” the CBK said in a statement issued on Friday.
“This follows CBK’s approval on March 13, 2023, under Section 13(4) of the Banking Act and approval by the Cabinet Secretary for the National Treasury and Planning on March 16, 2023, pursuant to Section 9(1) of the Banking Act,” it added.
Premier Bank is a privately-owned Shariah-compliant commercial bank with 20 branches, 80 ATMs and over 600 point-of-sales merchants.
It is among the large banks in Somalia, accounting for 16 per cent of the banking sector assets.
Premier Bank focuses on retail, small and medium-sized enterprises (SMEs) and corporates.
First Community Bank Limited was licensed in 2008 and is classified as a tier 3 bank in Kenya with 18 branches and a market share of 0.3% as at December 2022.
First Community Bank Limited Financial Status
FCB’s asset base stood at Kshs 22.1 billion in Q3’2022, with net loans at Kshs 18.2 billion. Customer deposits came in at Kshs 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 Kshs 205.7 mn in Q3’2022, an 8.2% y/y decline from Kshs 224.1 mn in Q3’2021, driven by a faster 15.9% increase in operating expenses to Kshs 1.1 billion from Kshs 1.0 bn in Q3’2021 which outpaced the 6.9% increase in operating income to Kshs 1.4 billion from Kshs 1.3 bn in Q3’2021.
Key capital ratios such as the Core capital to deposit liabilities ratio came in at 9.1% in Q3’2022, only 1.1% points above the regulatory limit of 8.0%.
The core capital to risk-weighted assets came in at 7.1% in Q3’2022, 3.4% points below the regulatory limit of 10.5%.
Similarly, the Capital adequacy ratio came in at 11.0% in Q3’2022, 3.5% points below the regulatory requirement of 14.5%, and 8.0% below the sector average of 19.0% in Q3’2022.
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 Q3’2022, 12.4% points above the banking sector average of 13.7% during the same period.
“We 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,” noted Cytonn Investments.
“The acquisition is also a welcome move as it ensures that the bank’s customer deposits are protected and will bring stability. Going forward, 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.”