Kenya's Top Buyer of Banks Is Now Looking Ahead to Profits

(Bloomberg) -- SBM Holdings Ltd., the Mauritius lender that bought two Kenyan banks within months of each other, expects the combined operations to make a profit within a year.

The second-biggest lender in the Indian Ocean island-nation is expanding in East Africa’s largest economy to use it as a hub for the rest of the region as part of a broader strategy funded by debt to add assets in its home market, Madagascar and Seychelles. The push into Kenya comes even as banks struggle to stem a drop in earnings spurred by a limit on interest-rate charges that has also caused lending to grind almost to a halt.

“Barring any large negative surprises, we are confident that the combined Kenya operations will be profitable in the first full year of operations,” Chairman Kee Chong Li Kwong Wing said in an emailed response to questions. “We believe in the long-term potential of the Kenyan economy and banking sector. Despite the caps, the margins are relatively healthy.”

The caps -- introduced at the end of 2016 when lawmakers pushed through legislation that compelled banks to charge customers a maximum of four percentage points above the benchmark interest rate for loans -- may not last in their current form much longer. The nation’s Treasury has said the limits will “very soon” be unsustainable and is drafting a new law meant to improve access to credit.

Better Outlook

Prospects for Kenya have also improved after a resolution to a political crisis that followed last year’s disputed elections, giving impetus for a turnaround at SBM’s loss-making entity in the country, the chairman said.

SBM’s Kenyan unit comprises Fidelity Bank, which it acquired in May 2017, and some assets and liabilities of Chase Bank Kenya Ltd., whose purchase is almost complete. The lender’s purchase of Chase Bank’s assets amounting to $600 million and liabilities of a similar value is awaiting final regulatory approvals.

The Competition Authority of Kenya Director-General Wang’ombe Kariuki said the agency will communicate its decision on Friday.

The lender could list the business on the Nairobi Securities Exchange as “part of a longer-term strategy to build a great bank for Kenya and deliver higher returns to our shareholders,” Li Kwong Wing said.

The rising volume of non-performing loans is a signal for SBM to be prudent, he said. Bad loans in Kenya rose to 10.6 percent of total loans last year from 9.1 percent in 2016, according to the central bank.

While SBM is not scouting for more deals in Kenya, it will assess opportunities on a “case-by-case basis,” Li Kwong Wing said. It has invested $26 million in the Kenyan subsidiary and will use Nairobi as a hub to branch out into East Africa, he said. SBM is raising as much as 3.5 billion rupees ($101.5 million) and $100 million in bonds to finance expansion in Mauritius and elsewhere.

There have been seven acquisitions in Kenya’s banking industry since 2015, according to Nairobi-based Cytonn Investments Management Ltd., and more purchases are expected after the central bank in 2017 lifted a two-year moratorium on licensing new banks.

©2018 Bloomberg L.P.