SBM Bank Kenya Description
SBM Bank Kenya Limited, previously known as Fidelity Commercial Bank Limited, is a commercial bank in Kenya, the largest economy in the East African Community. It is licensed by the Central Bank of Kenya, the country’s central bank and national banking regulator. The bank is a medium-sized retail bank, serving mainly the urban areas of Nairobi and Mombasa. As of October 2017, SBM Bank Kenya had an asset base of about US$70 million, with total deposits of approximately US$50 million.
The institution was incorporated in 1988 as an African Finance Company. In 1992, the finance company re-branded as Fidelity Finance Limited. In 1996, the institution rebranded again as Fidelity Commercial Bank Limited, having been granted a banking license by the Central Bank of Kenya, the national banking regulator.
SEM listed SBM Group announced in November 2016, that it has reached an agreement to acquire a majority stake in the bank. This process was concluded in May 2017 and the bank’s name was changed to SBM Bank (Kenya) Limited.
Business Name: SBM Bank Kenya
Location: 7th Floor, IPS Building, Kimathi Street
Address: P.O Box 34886-00100 Nairobi, Kenya
Region of operation: Nairobi Town, Kenya
Tel: (254) (20) 2242348 / 2248842 / 2244187
SBM Bank Kenya News
How Mauritian lender SBM toppled top Kenyan banks in a year
Updated On: 6th February 2018
How does one bank enter a market with a 0.4 percent market share and take only one year to grow into a top-tier bank with 95 branches and assets, only second to Kenya Commercial Bank (KCB)? It took Equity Bank decades of aggressive expansion and building the biggest customer base to get to number two, with Sh518.2 billion in assets.
The State Bank of Mauritius (SBM) which bought Fidelity Commercial Bank, with 14 branches and ranked 31 out of 41 Kenyan lenders now owns Chase Bank’s 62 branches, and Rafiki Microfinance Bank’s 19 branches, thousands of customers a feat that would organically take decades for a bank to build. “With an asset base of Sh542 billion ($5.328 billion) as on September 30, 2017, the bank would rank second only to KCB, with total assets of Sh655 billion ($6.438 billion), in East Africa and would be ranked a Tier One bank,” Fusion Capital CEO Daniel Kamau said.
The story of the Indian Ocean island lender is a curious case of timing, entering the Kenyan market at a time of crisis, collapse, regulation upheavals, and declining profits in the banking sector. And when disaster strikes, opportunity abounds for the astute investor. Linus Thum says in his book Stock Investing Simplified, disaster often lead to drastic and excessive fall in asset prices, also known as an excessive correction. In 2015, buying a Kenyan bank was an expensive business with potential acquisitions costing an average of twice the value of their books. In 2013 Guaranty Trust Bank (GT Bank) bought Fina Bank for Sh3.8 billion which was a 3.2 multiple of its value, Centum bought K-Rep Bank at Sh2 billion or 1.8 times of its value in 2014 while Mwalimu Sacco bought Equatorial Commercial Bank at Sh1.1 billion which was 2.3 times of its value in March 2015. Then three banks — Dubai, Imperial and Chase Bank went under in quick succession — taking the shine off banks that had hitherto looked lucrative.
The ensuing turmoil in the market saw Kenyan banks exposed to carrying huge non-performing loans and their valuations tanked. In September 2016, the battered banks had the rug pulled from under their feet, and a law capping interest rate was enacted, signaling the end of the golden decade that saw profitability grow 400 percent with the 11 listed banks growing in profits from Sh18 billion to Sh90 billion between 2007 and 2016. In 2016, I&M Holdings bought Giro Commercial Bank for Sh2.9 billion or 1.7 times of its book value marking an end of expensive banks in the market. Banks were, however, hoping that a moratorium on new banking licenses by the CBK will ensure that their value is not totally eroded since the only way a foreign bank could enter Kenya would be through acquiring a stake in an existing bank. “Acquisition is at a time when CBK has placed a moratorium on the licensing of new banks, thus operating banks have additional negotiating power, and purchasers of private banks have to pay premiums over the listed market valuations,” Clayton said. Tanzanian M-Bank defied the market buying Oriental Bank at Sh1.8 billion which was 1.4 times of the lender’s book value. But it was the State Bank of Mauritius (SBM) that turned heads in the market when it acquired Fidelity Bank for Sh100.
At the time, Fidelity Bank had been associated with Imperial Bank after it failed to be enjoined in a suit to freeze W.E. Tilley (Muthaiga) and Value Pak Foods assets saying they used the land to secure loans of up to Sh332 million. Fidelity Bank later backed down from the case to minimize damages of associating itself with the failed bank. However, Firoz Jessa whose family owned WE Tilley had a 4.9 percent stake in Fidelity Bank and there was no escaping. Still reeling with the consequences of contagion Fidelity looked ripe for the taking and SBM swooped in, carrying out due diligence before giving an offer. CBK gave its blessing to the acquisition and only required SBM to inject Sh1.5 billion into the bank and the Sh100 was just a legal formality for the lender. SBM may have discovered the underbelly of Kenyan lenders and had gotten the real picture of Kenyan lenders beyond the façade of balance sheet and fancy banking halls. When CBK sought to sell Chase Bank, it indicated that the lender was not in a bad shape and that only a few insider loans were the problem. This could easily be fixed when the property of the officials was attached and recovered back to the lender.
Financial institutions The 12 institutions expressed interest — three local banks, four foreign banks and a consortium of five financial institutions. Société Générale, France’s third-largest bank by total assets and the sixth-largest in Europe, led the pack of the six investors that were finally given the green light to make a bid offer, along with South Africa’s First Rand and Stanbic Bank, and local lenders KCB and I&M Bank. When the lenders did an audit they discovered that during the receivership, some people stopped servicing their loans. Large borrowers who had large deposits in the bank decided to stop making payments which led to the Sh20 billion hole extending the lenders negative equity to the tune of Sh35 billion. SBM opted out first suggesting that it could only carve out the good assets and liabilities. KCB also pulled out, with the lender’s boss Joshua Oigara claiming it had a conflict of interest since it has been running the bank into receivership. Then the other offers went up in smoke. Now CBK had to rescue the deal and took SBM’s offer to let the Mauritius lender take up 75 percent of the Sh76 billion asset book held by Chase Bank. “Looking at this deal, SBM would appear to be getting these assets for free from Chase Bank,” said Kamau the Fusion Capital boss. Fusion capital boss said since the bank had already set up shop and invested the minimum capital to run a bank they will not even need to put in more money after taking over Chase Bank. “As stated above, SBM has already injected capital of Sh1.5 billion into SBM Bank (Kenya) and may therefore not need another quick fresh injection as this is already more than the minimum capital of Sh1 billion ($10 million) required for any bank operating in Kenya,” Kamau said. Fusion says the Kenyan market will be lucrative to SBM since the net interest margin is higher for the Kenyan banks with an average of 5.03 percent against 4.83 percent for SBM. Lending rate This is mainly due to low credit off-take in Mauritius caused by continued excess market liquidity and declining spread between the lending rate and deposit rate with an average of 4.63 percent since August 2015. In Kenya however, the spread rate between the lending and deposit rate has been maintained at seven percent since August 2015, when the interest rate cap was introduced. Fusion said there is, however, one reason for caution on SBM which is that their books are yet to be audited to inquire how their operations have taken off. “Fusion has not been able to source reliable third-party analysis of their financials, nor have they published their accounts in Kenya or elsewhere, for 2017. We understand from confidential sources that this relates to their purchase of Fidelity Bank in 2017,” Kamau said. “CBK has, apparently, not yet approved their Kenyan auditors, and prior to the takeover, the previous management at Fidelity had not published accounts.” However, Mr. Kamau said they have no reason to believe that this points to trading problems with their Kenyan acquisition, but it remains a reason for caution in assessing their strengths and prospects. He said SBM will have to publish the information soon, in order to engage with Kenyan depositors, and we assume this is in management’s mind, as they complete the Chase transaction.
We endeavor to keep our content True, Accurate, Correct, Original and Up to Date.
If you believe that any information in this article is Incorrect, Incomplete, Plagiarised, violates your Copyright right or you want to propose an update, please send us an email to email@example.com indicating the proposed changes and the content URL. Provide as much information as you can and we promise to take corrective measures to the best of our abilities.