Bloc offers $28m price for Consolidated Bank

March 5, 2019

The Lake Region Economic Bloc, a group of 14 counties in the west of Kenya, wants to buy struggling Consolidated Bank — a move dismissed by analysts as imprudent.

The proposal comes after several false starts by the government in its bid to privatise the state-owed bank, which is facing core capital challenges and sinking deeper into losses.

The bloc’s chief executive, Abala Wanga, said they will present the plan to the National Treasury and the Privatisation Commission this week.

“We are finalising the proposal to buy Consolidated Bank, which we intend to turn into a development bank,” Mr Wanga said.

He added that plans to mobilise capital are at an advanced stages, with each of the 14 counties committing $2 million in their 2018/19 budgets and supplementary budgets.

The counties are Bomet, Bungoma, Busia, Homa Bay, Kakamega, Kericho, Kisii, Kisumu, Migori, Nandi, Nyamira, Siaya, Trans Nzoia and Vihiga.

Consolidated Bank is in need of a strategic investor to pump in at least $35 million.

The counties aim to raise $28 million. Late last year, the bank’s shareholders approved 175 million new preference shares to be offered to a strategic investor.

The bank is in dire need of a capital injection to shore up its core capital ratio, in line with statutory requirements — of which it has been in breach for four years — and build up its liquidity ratios.

“Consolidated Bank is implementing a balance sheet reorganisation as a precursor to the implementation of a future privatisation strategy,” said Charles Iyaya, Consolidated Bank chairman, last year.
The bank is among state-owned lenders that the Kenyan government has been seeking to dispose of. The others are National Bank and Development Bank of Kenya.

Plans to merge the three banks failed to take off after a South African consulting firm, Genetics Analytics, advised against it in favour of an outright sale.
The National Treasury controls a 78 per cent stake in Consolidated Bank with the rest going to five minority shareholders: The Local Authorities Pension Trust, the Local Authorities Provident Fund, NSSF, Kenya Reinsurance Corporation and Co-operative Bank of Kenya.

According to the Lake Region Economic Bloc’s development blueprint, a regional bank is among its flagship projects. The bloc had considered three options — establishing a new bank, buying a private bank and buying a public bank.

“Current financial markets do not meet the needs of the lower income-earning bracket of the population. A regional bank would be the preferred channel through which the lake region could channel funds in a manner that promotes the quality of life of the citizens of the region,” states the blueprint.

But analysts don’t agree with the bloc’s choice of Consolidate Bank going by the experiences of recent transactions involving Tier-3 banks.

“We remain suspicious... as purchasers seem to struggle immensely to turn around the operations,” said Standard Investment Bank in a research paper.

As an example, the paper mentions the decision by Mwalimu National Sacco to spend $24 million in 2015 to acquire a 75 per cent stake in Equatorial Commercial Bank (now known as Spire Bank).

Consolidated Bank is among Tier-3 lenders that are deep in the red particularly after the introduction of interest-rate capping in 2016.

While it posted a profit before tax of $476,049 in 2015, it posted losses of $2.7 million in 2016 and $4.3 million in 2017. In the nine months ending September 2018, the bank’s losses stood at $4 million.

Consolidated Bank was incorporated in December 1989 in a takeover of weak banks and non-bank financial institutions.