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KCB’s Congo buyout target heavy on commission – Business Daily

A KCB branch in Gikomba Market in Nairobi on Thursday, November 12, 2020. PHOTO | DENNIS ONSONGO | NMG
KCB Group’s Democratic Republic of Congo acquisition target Trust Merchant Bank made twice as much in fees and commissions compared to net interest income in 2021, pointing to the influence of non-funded income on the performance of Congolese lenders.
Disclosures on TMB books in a shareholder circular sent by KCB to its shareholders ahead of the takeover show that the DRC lender made Sh6.03 billion in fees and commissions last year, while net interest income stood at Sh3.07 billion.
On its balance sheet, TMB holds Sh104.4 billion in cash and deposits at other banks, more than double the Sh46 billion the lender has lent to customers in loans and advances.
TMB’s asset and income mix mirror that of Banque Commerciale Du Congo (BCDC) ahead of its acquisition by Kenyan lender Equity Group in 2020.
In the case of BCDC, commissions on transactions including foreign exchange trades brought in income of Sh5.6 billion in the year ending December 2019, ahead of lending income of Sh4.6 billion.
DRC’s economy is highly dollarised—meaning that the greenback is being used widely alongside the Congolese Franc—which generates a lot of foreign exchange transactions, resulting in commissions that outpace interest income from lending.
KCB however told shareholders in the circular that it expects to diversify TMB’s income streams by accessing a wider customer base, leveraging on KCB’s regional best lending practices, and accessing higher-yielding securities in the East African Community (EAC), which the DRC formally joined in April this year.
“The acquisition of TMB and subsequent amalgamation into KCB Group will enable realisation of the following potential synergies: balance sheet optimisation through reallocation of assets to higher earning asset categories; Incremental lending through enhancement of products and services and targeting high potential customers (and) lower group cost of funding through ready access to hard currency, given DRC’s dollarised economy,” said KCB.
KCB, which already has operations in Rwanda, Burundi, Tanzania, Uganda, and South Sudan, wants to acquire an 85 percent stake in TMB and plans to buy the remaining shares within two years.
The acquisition will be priced at 1.49 times the book value or net assets of the DRC lender, which as of the end of 2021 stood at Sh14.15 billion. This would value the takeover at Sh17.9 billion at this multiple.
TMB, which is headquartered in the DRC’s second largest city Lubumbashi, began operations in 2004. As of June last year, the lender commanded an 11 percent market share in the DRC, having established 109 branches in the country and a representative office in Belgium.
Mineral-rich DRC, which is one of the biggest countries on the continent by land mass and with more than 80 million people, has been a magnet for ambitious companies looking for growth in the continent.
It is therefore attractive for Kenyan commercial banks, which are looking beyond their borders for acquisitions, seeking to tap opportunities in the wider East Africa which are driven by rapid economic growth and trade integration.
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