Category Archives: Basel II

AfDB’s record capital call of $115 billion

The shareholders of the African Development Bank (AfDB) have approved an increase of its capital to support its future development finance and impact across the continent over the next decade.

Meeting in Abidjan, Côte d’Ivoire, in October 2019, the shareholders, representing 80 countries, approved an increase in the AfDB’s authorised capital, from $93 billion to $208 billion. At the end of 2018, the Bank had assets of $47 billion and $58 million of net income.

The voting power of shareholders includes Nigeria (9.3%), Egypt (5.6%), South Africa (5%), Algeria (4.2%), Morocco (3.6%), Côte d’Ivoire (3.7%) and Kenya (1.4%). African nations have a total of 59% of the voting powers, while other nations, including the USA (6.6%), Japan (5.5%), Germany (4.1%) and Canada (3.8%), have total votes of 41%.

The path to the seventh capital increase began back in January 2018 and has gone through several steps including interactions and progress review updates with shareholders and partners that were summarized at the 2019 AfDB annual meetings in Malabo, Equatorial Guinea.

The last capital increase was in 2010. Some of the highlights of the funding during the sixth period include the establishment of agro-industrial zones across Ethiopia and arranging $1 billion in finance for South Africa’s Eskom to expand its generation and transmission capacity. There was also the Sene-Gambia bridge, which was the realization of a 40-year dream to connect two countries, the 895-kilometers Addis-Mombasa highway and the expansion of Namibia’s Walvis Bay port to become a regional logistics hub.

A bank study of the impact of its $1.4 billion investments in East Africa region, between 2013 and 2015, found that this had resulted in the addition of $1.2 billion to the economies of the different countries and created over 380,000 jobs

The new funding, which will be called up from shareholders between 2020 and 2025, is intended to finance the Bank’s High 5 priorities and maintain its AAA rating with the top rating agencies. Over the next decade, the AfDB plans to double the funding efforts towards energy and agriculture, with targets to allocate 25% and 20% respectively, to the two sectors by 2031.

The Bank has lined up a three-year pipeline of projects to lend to, including $15 billion in 2020 and $13.6 billion in 2021. Some of the planned projects are targeted at improving continental transport networks, supporting climate change initiatives, and increasing access to electricity and water. One of them is a “Desert-to-Power” initiative that aims to transform the climate-fragile Sahel region into the largest solar zone in the world that will generate 10-gigawatts and impact 250 million people.

KCB to acquire National Bank of Kenya

 

KCB has started the process of integrating NBK into KCB, an exercise that is expected to be completed within the next 24 months, focusing on systems, processes, people and institutional governance. 

KCB has made an all-share offer to acquire National Bank of Kenya in a not too unexpected move. Kenya’s largest bank will acquire the private, but state-controlled, NBK that was wrestling with an undercapitalized position.

KCB will acquire NBK, which has assets of Kshs 115 billion by offering 1 share for every 10 NBK shares. KCB trades at about 45 and NBK at 4.5 and this puts the offer, after conversion of NBK preference shares into ordinary ones, at about Kshs 7 billion. NBK has deposits of Kshs 99 billion and loans of Kshs 47 billion. It issued a rather late profit warning just before reporting a pretax profit of Kshs of 587 million for 2018, in March this year.

Bank shareholders: The NBK results notice also mentioned that its principal shareholders had committed to increase the capital of the bank a year ago. The Government of Kenya and the National Social Security Fund (NSSF) are significant shareholders in both KCB and NBK. At KCB the Government owns 17.5% and NSSF 6.12% while at NBK, the workers’ fund has 48% and the Government has 22.5%.

This deal presents an opportunity to rescue National Bank whose capital to asset ratio had dipped to 3%, far below the statutory minimum. The Government has grappled with how to restructure its portfolio of struggling banks and this option is a cash-less one that will see it and NSSF increase their shareholdings in KCB as other NBK shareholders gain by obtaining shares in the Kshs 714 billion KCB, the regional banking leader. Trading of shares of both banks was briefly halted on Friday morning, prior to the announcement.

Conditions of the deal to go ahead include approval by 75% of NBK shareholders (NSSF and the government own a combined 70% of the shares), while the Government is to also convert 1.135 billion preference shares in NBK into ordinary shares, representing a recapitalization of the bank by Kshs 5.7 billion. Also, if the deal is concluded, NBK will be delisted from the Nairobi Securities Exchange.

Banking M&A: KCB is now in the process of acquiring two banks – NBK and Imperial as two weeks ago the CBK and KDIC announced an improved offer deal with KCB for Imperial’s assets. The deal news comes in a week after NIC and CBA shareholders approved a merger of their banks.

It remains to be seen if Equity and Stanbic, which have expressed takeover designs on NBK over the last decade, will put in a bid for NBK. And also what will happen to other banks in similar positions of being in dire need to raise capital from their shareholders to meet statutory requirements.

EDIT October 4: KCB Group announced the completion of the successful take-over of National Bank (NBK) and listed an additional 142,979,717 shares of KCB at the Nairobi Securities Exchange for shareholders of NBK.

KCB has started the process of integrating NBK into KCB, an exercise that is expected to be completed within the next 24 months, focusing on systems, processes, people and institutional governance. 

Ghana bank reforms continue

Continuing banks reforms in Ghana, from back in 2018, the Bank of Ghana issued a new statement (PDF) on the state of banking in the country for the end of that year.

It stated that they had inherited a system with distressed banks that were not adequately capitalized, and which had high non-performing loans, and cases of insolvency and illiquidity – largely a result of poor corporate governance, false financial reporting, and insider dealings.

They noted that they had revoked seven licenses and arranged for those banks to exit in an orderly way and that after a recapitalization push, there were 23 banks with universal banking licenses in Ghana that had met the minimum paid-up capital of GHF 400 million (~$83 million) at the end of the year.

Excerpts:

  • The Bank of Ghana had approved three merger applications – (i) of First Atlantic Merchant and Energy Commercial banks, (ii) of Omni and Sahel Sahara banks and that of (iii) First National and GHL banks, as pension funds had invested equity in five other banks through a special purpose holding company called the Ghana Amalgamated Trust (GAT).
  • Another bank, GN Bank, was unable to comply with the capital requirement and its request to downgrade, from a universal banking license, to a savings and one had been approved. 
  • The Bank of Baroda has divested from Ghana following a decision by its parent bank which is wholly-owned by the Government of India. Subsequently, the Bank of Ghana has approved its winding down plan and allowed all the customers, assets and loans of Baroda Ghana to be migrated to Stanbic Bank Ghana.
  • Two other banks Premium and Heritage had their licenses revoked, and a receiver manager from PricewaterhouseCoopers appointed to take charge of the banks. Premium was found to have been insolvent while Heritage had obtained its license in 2016 on the basis of capital with questionable sources. All deposits of the banks were transferred to Consolidated Bank and the Ghana government has issued a bond to support the transfer of assets.

EDIT August 16 2019: The Bank of Ghana revoked the licenses of 23 insolvent savings and loans companies and finance house companies as well as 2 non-bank financial institutions.

The regulators had assessed the savings and loan and finance house sub-sectors and found challenges of low capital, excessive risk-taking, use of depositor funds for personal projects, weak corporate governance, creative accounting and persistent regularity branches and non-compliance.

The institutions are Accent Financial, Adom S&L, Alltime Finance, Alpha Capital S&L, ASN, CDH, Commerz S&L, Crest Finance, Dream Finance, Express S&L, First Allied, First African, First Ghana S&L, FirstTrust, Global Access, GN S&L, Ideal Finance, IFC, Legacy Capital, Midland, Sterling Financial, Unicredit Ghana and the Women’s World Banking Ghana S&L .

Nigerian Banks – Diamond and Access to merge

After weeks of speculation, Diamond and Access Banks announced a merger to create the largest bank in Nigeria.

It was reported that the Diamond Bank spurned offers to inject critical capital from US private equity firm, Carlyle that was a key shareholder in the bank and sought other deals, and the statement points to a competitive process out of which Diamond selected Access Bank.

According to an FT report, the deal values Diamond at just over $200 million and would create Nigeria’s biggest bank by both deposits and assets and that the merged entities would have 650 branches and 6,800 that would see some savings through redundancies.

Access will acquire Diamond through a combination of cash and shares with Diamond shareholders receiving Naira 3.13 per share, comprising N1.00 per share in cash and the allotment of 2 new Access Bank ordinary shares for every 7 Diamond Bank ordinary shares held.

The merger will result in the end of Diamond Bank with listings of its shares cancelled at the Nigeria Stock Exchange and the London Stock Exchange when the merger is completed in the first half of 2019. Access is listed in Nigeria, while Diamond was also caught up in the Nigeria vs. MTN forex case.

The Banker Magazine ranked five Nigerian banks among 1,000 top global banks with Zenith, Guaranty Trust, FirstBank, Access Bank and United Bank for Africa featuring. Another ranking of the top banks in Nigeria in 2017 listed Nigeria Zenith, Guaranty Trust, First Bank of Nigeria, Ecobank Nigeria, Access Bank, United Bank for Africa, Diamond Bank, Union Bank of Nigeria, and Fidelity Bank. The banks with a presence in Kenya are Guaranty Trust Bank (GTBank), Ecobank and United Bank for Africa (UBA).

edit March 2019 Approvals: The merger decision was approved by 98% of Access Bank shareholders, while at Diamond Bank it got 100% (99.98%) approval. Also, the Central Bank of Nigeria and the Securities and Exchange Commission have approved for the combined businesses to start business on April 1, 2019, as a Pan-African bank operating in 12 countries, 3 continents. The combined banks (Access had 11.8% market share and Diamond 4%) will have 15.9% making it largest Nigerian bank ahead of Zenith (14.6%), FBN (13.9%) and UBA (11.7%)

Digital banking: The new bank has been hailed by the deal backers as creating Africa biggest retail bank by customer base (29 million) with 677 branches, and 3,100 ATM’s. On the digital side, Access had 3 million customers compared to Diamond’s 10 million online banking customers and Access will incorporate elements of Diamond’s banking services such as XclusivePlus, DiamondXtra and Pay Day loans. 

No new capital: Post-deal ownership of the bank will comprise 81% Access shareholders and 19% Diamond shareholders. Access was expecting to proceed to raise Naira 75 billion ($207 million) of capital and had got approval for a rights issue to happen in the first half of 2019, but they will no longer pursue this avenue as they have identified 150 billion Naira in revenue and cost synergies to be tapped over the next three years.

CBA and NIC to merge

EDIT October 22 2019:  NCBA Bank Kenya has been listed on the Nairobi Securities Exchange.

The additional 793.8 million new shares belonged to owners of CBA Group including members of the Kenyatta family and billionaire businessman Naushad Merali with listing status opening the owners of the additional stock to public scrutiny. The new NCBA shareholders include the Kenyatta family who control about 13.2% of the new entity, a level of ownership that slightly surpasses the 11.75%  stake that the family of the late Phillip Ndegwa.  

EDIT October 1, 2019:  The merger of CBA and NIC banks became official today (Oct 1)following the receipt of final approvals from the Central Bank of Kenya and the National Treasury last week. The new entity will be called NCBA Holding company with NCBA Bank Kenya being the banking entity for the two banks who will spend this month harmonizing their different systems

Phase two will entail the consolidation of their bank entities in Tanzania, Uganda and Rwanda, while a new brand identity will be unveiled later.

Jan 31, 2019 The boards of NIC and CBA have agreed to the merger and provided further details of the deal in Nairobi.

 

Dec 6, 2018 The boards of NIC Group and Commercial Bank of Africa have announced preliminary plans to merge. This follows talks that had been reported as far back as January 2015.

The move is driven by a need to consolidate capital and liquidity with new technology opportunities to provide more services to customers and grow returns for shareholders.

The merger of the eight and ninth largest banks in the country will result in a banking institution that will be the second or third largest by assets, behind KCB and Equity.  As of September 2018, NIC and CBA had a combined asset base of Kshs 443 billion ($4.3 billion) and Kshs 9.3 billion in pre-tax profits. 

CBA is already the largest bank by customer numbers thanks to M-Shwari, its partnership with Safaricom’s M-Pesa that had over 21 million customers last year.

More details will come later and NIC is listed on the Nairobi Securities Exchange.