By James Anyanzwa

It is survival for the fittest in the banking industry, as major players rush to secure cheaper capital and seek ways to tap into new markets to boost revenues.

Propelled by the burning desire to expand clientele base, commercial banks are now pumping in fresh capital to shore up their balance sheets, strengthen their lending muscles, and comply with minimum capital requirements that allows further growth in loan book and deposits.

With an expanded customer base, commercial banks will also be staring at improved transaction and interest-based incomes.

The unfolding scenario in the banking landscape has seen many players seek cash calls from shareholders, an option that is considered cheaper and less sophisticated compared to commercial debts and initial public offerings (IPOs).

With the increasing popularity of the rights issue as a convenient and safer method of raising new capital, a growing proportion of commercial banks have either recapitalised, or are in the process of wooing shareholders to free more funds into their companies’ operations.

“Given that rights issue is limited to the existing shareholders, it is a strategy to raise capital without destabilising the percentage holding of the shareholders or dilution in the extreme, unless a shareholder decides so, by not participating.

It is also a surer way to raise the money, as the existing shareholder already believe in the company are  familiar with its strategic direction, so they are willing to fund the strategy,” said Habil Olaka, Chief Executive, Kenya Bankers Association (KBA), the industry’s umbrella body.

ATTENDANT risks
“As opposed to IPOs, rights issues are still better and safer bet. Of course, it also has risks, in that the rights issue may also be undersubscribed. But it has better prospects than an IPO.”

Olaka says a number of commercial banks are looking to raise new capital to fund their ambitious expansion strategies into the large East Africa Community (EAC) market.

“A number are already operating at their deposit taking capacity, and would only increase their deposit base for on-lending by increasing their capital base,” he said adding that, “With the current policy of financial inclusion that seeks to increase services to the previously un-banked and the under-banked members of the Kenyan community and the region, banks would need to develop the capacity for this, hence the capital appetite.”

Expressed interest
Standard Chartered Bank, Diamond Trust Bank (DTB), NIC Bank, CfC Stanbic bank are among commercial banks that have expressed interest in turning to their shareholders for additional capital.

Kenya Commercial bank (KCB) executed three rights issues within the last eight years, with the third issue occurring in 2010 when the bank managed to raise Sh12.4 billion against a target amount of Sh15 billion.