Co-operative Bank headquarters in Nairobi. The bank has introduced a paperless end-to-end account opening process.
Co-operative Bank headquarters in Nairobi.

The Central Bank of Kenya (CBK) has announced a proposed acquisition of Jamii Bora Bank by the Co-Operative Bank.

In a statement, CBK indicated that C0-operative Bank expressed interest in acquiring 100% of Jamii Bora. Jamii Bora has been struggling financially as it found it difficult to compete with the big boys in the Kenyan banking sector.

Jamii Bora and other tier-three banks in Kenya have been having difficulties balancing their finances for the last three years now. Especially with things being rosy for the entire banking sector, the big banks have been blooming while the small boys struggle.

Of course, for a number of these troubled small lenders, poor corporate governance and wrong investment decisions are largely to blame for their current cash problems. 

Analysts have, however, cited a number of industry-wide issues, starting with the collapse of Chase Bank and the introduction of the interest rate cap in September 2016, for the small lenders’ woes.

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The recent merger, NCBA, had plans of buying out the struggling Jamii Bora but the deal did not fall through. CBA had opened buyout talks with Jamii Bora Bank at the same time it was in discussions with NIC Bank over the merger that was completed last October creating NCBA. However, there has not been any more talks after the NIC, CBA merger.

CBA had in January 2018 made a Ksh 1.4 billion cash offer to buy out Jamii Bora Bank and hold it privately in addition to having a stake in the merged operations of CBA and NIC.

Jamii Bora, which is facing liquidity challenges, was hoping the merger would make it compliant with regulatory financial ratios and strengthen its position in the lending market.

Its liquidity ratio was negative 11.1% compared to CBK’s minimum of 20% as at the end of March 2018, leaving it in a liquidity deficiency of 31.1%. This left it constrained in terms of issuing new loans.

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The co-operative bank has now proposed to buy the entirety of Jamii Bora and free it of its troubles, a move the CBK says will diversify the business models of the two banks.

“CBK welcomes the transaction that will diversify the business models of the two institutions and enhance the stability of the Kenyan banking sector,” the CBK presser reads in part.

Jamii Bora was established in 2010 after the acquisition by City Finance Bank Limited of the business of Jamii Bora Kenya Limited, a Micro Finance Institution. It was ranked 38 out of 39 banks in terms of market share as at December 31, 2019 with a market share of 0.12 percent with 17 branches across the country.

The proposed acquisition is still subject to regulatory approvals.

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