Jamii Bora Bank approves Co-op Bank takeover offer
By Peter Theuri | June 17th 2020
Co-operative Bank has inched closer to the acquisition of Jamii Bora Bank after the latter’s board approved a takeover offer.
Jamii Bora said in a statement that the proposed transaction will see significant capital injected into the lender and will enable it to leverage the combined skills and expertise of both entities.
“Following the conclusion of thorough due diligence and a special board meeting held on June 3, 2020 the board approved for recommendation to the shareholders a legally binding offer from Co-operative Bank," said a statement from the bank.
Jamii Bora is an SME-focused lender on the lower tier of Kenya's banking sector with 17 branches countrywide and assets estimated at around Sh12 billion.
It has however been experiencing liquidity problems and was looking for capital injection in the last couple of years. An earlier takeover bid of Sh1.4 billion by NCBA Bank did not go through.
Co-op Bank on the other hand was the third largest lender after Equity and market leader KCB before the merger of CBA and NIC (to form NCBA) dislodged it last year, and the acquisition is expected to push its total assets to Sh462.2 billion.
An industry report for the first quarter released this week raised the bank's ranking to second position from third in 2019, mainly due to an improvement in its gross non-performing loans (NPL) ratio.
The report by Cytonn Investment on listed banks showed an improvement in Co-op's NPL ratio to 10.8 per cent from 11.2 per cent last year, placing it only behind I&M Bank in franchise value.
KCB, the country's largest bank, declined to third in franchise value from first position last year mainly due to a deterioration in its cost-to-income ratio from 56.2 per cent in the 2019 financial year to 61.1 per cent in the 2020 first quarter.
This came as the banking sector recorded a 7.4 per cent average decline in core earnings per share compared to a growth of 12.2 per cent in a similar period last year, attributed to the tough operating environment occasioned by the coronavirus pandemic.
"Asset quality deteriorated in Q1’2020 with the gross NPL ratio increasing by 0.9 per cent to 11.3 per cent from 10.4 per cent in Q1’2019," said Cytonn.
"This was high compared to the five-year average of 8.5 per cent. Consequently, this saw the NPL coverage increase to 57.4 per cent in Q1’2020 from 54.5 per cent in Q1’2019 as banks adopted a cautious stance on the back of the expected impact of the Covid-19 pandemic."
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