Lake region economic bloc shelves plan to open bank

The Lake Region Economic Bloc (LREB) that brings together 14 counties in western Kenya has settled on buying majority shares in an established bank against earlier plans to start a new one.

Although the bloc is still negotiating with four banks, with a planned initial contribution of Sh2.8 billion, the bloc seeks to have the controlling shares in an existing bank with a current capital reserve of about Sh3 billion.

The counties initially planned to open a commercial bank and had targeted to raise Sh2.6 billion to meet the statutory minimum reserve.

LREB chairman and Kakamega Governor Wycliffe Oparanya said they had shelved their startup ambitions because of technicalities involved.

“We have been advised that it would take long to establish the necessary structures to have a new bank in place. We have, therefore, decided that we are going to buy controlling shares in a small bank and operate like any other normal bank,” he said.

Former KCB Chief Executive Martin Oduor-Otieno is chief consultant for the initiative.

Mr Oparanya said they were yet to seal a deal with any of the four banks they were engaging in the ambitious development that would also be a boost to the selected bank.

Small banks have been sailing in rough waters since the fall of Chase Bank in April 2016 which saw capital flight to ‘safer’ Tier 1 lenders.

Each of the 14 counties has been given up to December next year to raise Sh200 million in share capital in the bank.

The counties have been asked to incorporate the money into their budgets but can make the contributions in installments.

“If by the end of next year some of the counties have not remitted their full contribution, we will put in what we have in installments. This is one of the agreements we are seeking with the banks,” he said.

The governor said the decision to set up a special bank was informed by “difficulties faced by entrepreneurs seeking access to capital.”

“As we come together we want to exploit economic opportunities within this region and for that we need to avail capital to those ready to pump money into economic ventures,” he said.

Scaled down

Oparanya added that they had also scaled down the number of county assemblies needed to ratify the formation of the economic and development bloc from six to three.

This, he said, was aimed at speeding up legalisation. “We have lost a lot of time trying to get the legal framework for the bloc in place. And so to move forward, we agreed that the number of counties needed to ratify the bloc be scaled down to three so that we can embark on the envisioned projects as soon as possible,” he said.

Homa Bay County Assembly had opposed the planned bank and blocked the Sh200 million contribution, but the ward reps later rescinded the decision and allocated Sh50 million to the bank through a supplementary budget.

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