Somalia’s Premier Bank has bought a majority stake in troubled Kenyan lender First Community Bank - the country’s first Sharia-compliant bank.
The rare deal whose financial details were not disclosed comes as a relief for the Kenyan bank, which nearly collapsed earlier this year after suffering a customer run linked to a liquidity crisis.
The Mogadishu-based Premier Bank hopes to ride on the billions of dollar flows in annual trade between Somalia and Kenya to gain market share, a pointer that it could target trade finance and diaspora remittances.
Details of the sale were revealed by Kenya’s competition regulator in a gazette notice on Friday.
“It is notified for general information that in the exercise of the powers conferred upon the Competition Authority of Kenya…(it) has authorised the implementation of the proposed acquisition of 62.5 per cent stake in First Community Bank Ltd by Premier Bank Ltd (Somalia),” said CAK acting Director General Adano Wario.
First Community started operations in Kenya on June 1, 2008.
It was the first lender to launch fully-fledged Islamic finance services, which follow Islamic religious principles such as bans on interest payments.
Islamic finance has since grown in the country over the years and accounts for over two per cent of the total banking business in Kenya, with Muslims making up about 15 per cent of the population of over 40 million.
Kenya has three full-fledged Islamic banks which include Gulf African Bank, DIB Bank and First Community Bank.
First Community Bank has also faced a liquidity crisis in recent years.
In the last five years to 2021, the bank's core capital has dipped below the Sh1 billion threshold three times.
And since 2018, nearly all the other capital adequacy ratios – which are also critical for telling the ability of a bank to meet its obligations, including sudden huge withdrawals – were below the minimum regulatory threshold.
In a footnote to the unaudited financials for the first half of 2022, the lender revealed that on June 30 last year its shareholders, who include prominent Nairobi lawyer Ahmednasir Abdullahi, pumped in an additional Sh510 million through a rights issue.
The privately-owned Premier Bank is now expected to target the lucrative diaspora remittances market after gaining a foothold in the local market.
Founded in 2013 and licensed by the Central Bank of Somalia in 2014, Premier says on its website it offers various services including retail banking, business and corporate banking, and international money transfers.
Somalia and Kenya are historically, culturally and economically interlinked.
Many citizens of both countries share a common ethnic heritage and thousands of Kenyans, particularly teachers and traders, work and live in Somalia.
Tens of thousands of Somalis likewise live and work in Kenya, including many university students who attend Kenyan colleges.
However, few Somalis have bank accounts.
The lack of a vibrant and entrenched formal banking system in Somalia is one of the legacies of conflict and instability that has gripped the nation since military dictator Mohamed Siad Barre was ousted in 1991.
Each year, Somalis abroad use money transfer operators to send home an estimated $1.3 billion - more than all humanitarian and development aid combined - according to a 2013 report by aid groups Oxfam, Adeso and the Inter-American Dialogue.
Though they provide a lifeline to millions in the Horn of Africa nation, few banks do business with the transfer firms because of the risk of falling foul of international transparency and anti-money laundering regulations.
The money transfer companies - known as hawalas - are vital to economic activity and delivering humanitarian aid.
A slowing economy has made it difficult for some Kenyan financial institutions, especially small ones and microfinance banks, to mobilise deposits and borrowers to repay their loans.
Central Bank of Kenya (CBK) has been quietly encouraging forced marriages of troubled lenders by larger, more capitalised banks since the collapse of Imperial Bank and Chase Bank.
This was the case with the acquisition of Fidelity Bank by SBM Bank, National Bank of Kenya by KCB, Jamii Bora by Co-operative Bank, and recently Equity Bank buying some assets of Spire Bank.