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KCB issues caution over proposed restructuring

Business News

Kenya Commercial Bank Ltd (KCBL) directors have urged shareholders and customers to exercise caution when dealing with the bank’s shares. This follows a resolution last week by the bank’s top management to undertake a restructuring which will lead to the establishment of a non-operating holding company for the KCB Group.

Subsequently, KCB Ltd’s current banking business in Kenya will be transferred to a new subsidiary by operation of Section 9(3) of the Banking Act. “KCBL will become the Group’s non-operating holding company. The new subsidiary will be wholly owned by KCBL and will continue to carry on the banking business in Kenya,” read the KCBL announcement signed by Company Secretary.

Kenya Commercial Bank Ltd will be waiting for regulatory approval from Central Bank of Kenya as well as a nod by shareholders, joining Equity Group and Housing Finance (HF) and I&M bank, all at the tail end of the process.

A holding firm is a special type of business that doesn’t do anything itself. Instead, it owns investments, such as stocks, bonds, mutual funds, gold, silver, real estate, art, patents, copyrights, licences, private businesses, or virtually anything of value.

The new banking regulations passed under the Finance Act of 2012 allows banks to re-organise their structures and spread risks associated with subsidiaries.

Before the amendment, ownership of above 25 per cent of a bank’s share capital was designated to banking firm, state corporation, government or its parastatal.

Holding company

Once Kenya Commercial Bank Ltd becomes a non-operating holding company in terms of Section 13(1) (e) of the Banking Act, it will own the wholly-owned subsidiary as well as all other subsidiaries and shareholding investments of the bank.

The holding company will oversee the KCB Kenya and its regional units in Uganda, Tanzania, Rwanda, Burundi and South Sudan. Kenya’s largest bank also has an investment banking arm called KCB Capital. Kenya’s banking sector regulator has developed guidelines to allow special entities to own more than 25 per cent of the share capital of a bank.

A brief by analysts at PricewaterhouseCoopers - a multinational professional services network - says having a banking group under a holding company is crucial in regional expansion as the law is not structured to support banking groups.

This strategy was first used by City Trust; an investment firm which owned just 7.28 per cent of I&M Bank, in a reverse takeover deal that saw it acquire all the shares in the lender and merger of the two firms.

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