Listed Kenyan lender I&M is firming up plans to acquire Ugandan mid-tier lender Orient Bank continuing the trend of local banks expanding their wings to regional countries.
In a disclosure on Monday, I&M announced it is planning to push through the acquisition of 90% stake of Orient after striking a deal with the Ugandan bank’s shareholders.
“Completion of the above proposed transaction is subject to several conditions, including receipt of all regulatory and corporate approvals, including those from the Central Bank of Kenya, the Bank of Uganda, the Capital Markets Authority and the shareholders of the Company in a general meeting,” read the disclosure.
It is expected that the proposed transaction will have a material effect on trading of I&M’s shares at the Nairobi Securities Exchange (NSE).
Orient Bank is a mid-tier bank in Uganda with an asset base of Ush814 billion (Ksh23.69 billion) as per the company’s audited 2019 financial results.
In the financial year ended December 31, 2019, the Ugandan lender posted a net loss of Ush1 billion (Ksh30.6 million).
I&M on a roll
A report by Cytonn Investments released on June 16, ranked I&M’s stock as the most attractive of all lenders at the Nairobi Securities Exchange (NSE).
Cytonn’s report dubbed Deteriorating Asset Quality amid the COVID-19 Operating Environment, covering the fisrt quarter of 2020 hinged its decision to rank I&M top of the pile on strong franchise value and intrinsic value score.
“We note that asset quality deteriorated in Q1’2020 with the gross NPLs (Non-Performing Loans) ratio increasing by 0.9 percent points to 11.3 percent from 10.4 percent in Q1’2019, this was high compared to the 5-year average of 8.5 percent,” said David Gitau, an investment analyst at Cytonn Investments.
Gitau noted that during the period that banks in accordance with International Finance Reporting Standards 9 were expected to provide both for the incurred and expected credit losses and this saw the NPL coverage increase to 57.4 percent from 54.5 percent in Q1’2019 as banks adopted a cautious stance on the back of the expected impact of the COVID-19 pandemic.
Cytonn also ranked I&M favourably on future growth prospects with the bank scoring highly on the different parameters used to gauge potential.
During the quarter, I&M’s return on average equity stood at 17.5% while Core Earnings Per Share stood at 27%.
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