SBM Kenya entry strategy – Stability first & building Scale sooner than later

SBM Holdings Ltd (SBM Group) began its Africa foray by the setting up of SBM Bank (Kenya) Limited through the acquisition of Fidelity Commercial Bank (FCB) effective on 11th May 2017.

Kenya is not an unknown market to the Group. SBM Bank (Mauritius) Limited has its dose of credit exposure on most African countries through corporate finance and interbank trade finance & Money/FX markets activities.

The Mauritius based SBM Securities Services Limited and SBM Asset Managers Limited provide access to Africa based investors for investments in global markets across jurisdictions and asset classes. Therefore, it is a shift from suitcase banking to brick-and-mortar branch banking.

SBM Holdings Ltd has acquired a bank which was struggling to meet regulatory prescriptions across capital, liquidity and profitability issues such as capital adequacy ratio, liquidity coverage ratio and NPA & Profitability ratios.

As part of its growth and regional internationalization strategy, SBM Group looks for opportunities in the Africa-Asia corridor to put global access to capital and liquidity to work. Given the fact that new banking licence is hard to obtain in Kenya, the best option was to acquire a small Tier 3 bank and build scale on it over time. The acquisition of FCB served the purpose of East Africa/COMESA entry at affordable cost, establishing Kenya as the hub of East Africa.

The first phase of SBM Bank (Kenya) Limited is to achieve financial stability before end of financial year 2017 and to meet regulatory prescriptions quickly, in order not to be seen as a defaulter by the Central Bank of Kenya. The infusion of fresh capital of KES 2.0 Billion will quickly address the Capital Adequacy ratio and Liquidity coverage ratio with target credit portfolio of KES 15-20 Billion by the end of 2017.

The business focus during this period will be on building relationships with wholesale depositors – Banks, Financial Institutions, Mutual Funds & Asset Management Companies, cash surplus corporate entities and high net worth individuals so as to build a strong and cost efficient liability franchise in the Bank. In parallel, the Bank will work of the optimisation of all its advantages in the cross-border and Financial Markets business.

The access to low cost global liquidity and balance sheet presence in Mauritius, India, Madagascar and Seychelles before the end of 2017 will be leveraged through corporate & Trade Finance and FX & Derivative products to large corporate & institutional entities and SME segment. The Branches of the Bank will emerge as Point of Sale to the Group’s Bank & non-bank subsidiaries both in India and Mauritius for coverage of to–and-fro businesses between these jurisdictions. This will enable the servicing of the same client across different jurisdictions with a single point credit risk assessment and build cross-sell synergies and traction which will in turn lead to cost optimization and revenue maximization for the Group.

The immediate agenda is to build profitability of the business and efficiency of the capital deployed to be shown in the published audited balance sheet for year ended 2017.

What lies behind 2017 is work in progress, but would emerge as a holistic financial services group. The ambition is to reduce the transition time from Tier 3 to Tier 1 Bank. The Group has the capability to cut the upgrade time through combination of organic and inorganic growth. We shall be a balanced player between financial intermediation and financial services. The Net Interest Income/margin from financial intermediation comes through use of capital, deposits and credit risk, whereas financial services products generate revenue without use of capital & risk leveraging on the products & services with the global coverage.

The play on the productivity & efficiency with balanced mix of credit and non-credit products will help the Bank to crop up as the most profitable bank and still may not be the largest Bank in Tier 1. The entry comfort is also from significant improvement in the operating environment in the Banking and Financial Services Sector.

Since Q4/2016, there has been stability in financial markets – Bond yields are in trend-down mode with 10Y yield easing below 14% at good pace & more in the shorter end of the curve, exchange rate is stable with USD/KES at 102.50-104 and NSE20 index has recovered sharply from below 2800 to over 3200.

All these signals are positive in the way forward. The lending rate cap is not a relevant issue for the Bank as our liability franchise will be around the deposit floor rate of 7%. So, operating the financial intermediation engine at 7-14% corridor is not a risk factor on the Balance sheet, while it is a blessing in disguise when Government yields are at 10-14% across 1-10 years tenor.

All combined, SBM Holdings Ltd sets its feet on the Kenya soil with confidence on the operating environment, good comfort on the monetary dynamics & policies of the Central Bank and to provide differentiated financial services to the stakeholders of the economy. The tag line of the Bank comes up as financial partner with global capabilities to upgrade the satisfaction level of our customers to a delightful experience!

Moses Harding John

Advisor to the Board of Directors and

Lead Executive – Group Executive Forum

SBM Holdings Limited