Kenya-based Equity Group Holdings’ move to purchase 66.5 percent of Banque Commerciale Du Congo (BCDC), a Congolese lender, has received a stable outlook from Moody’s.
Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis.
In an issuer comment, the rating agency said BCDC will gain from the financial muscle of Equity Group. Similarly, the acquisition will strengthen Equity’s regional franchise, increase diversification, and growth potential.
This is despite the high credit risk inherent in the Democratic Republic of Congo.
Pending approvals by both companies’ boards and all regulators, Equity Group will pay $105 Million in cash to BCDC’s majority shareholder, George Arthur Forrest.
After the stake acquisition, the Kenyan lender plans to combine BCDC with Equity Bank Congo S.A. (EBC), its banking subsidiary in the DRC. The DRC government has a 25per cent stake in BCDC.
“The proposed acquisition will be credit positive for both BCDC and EGH. BCDC will benefit from the association with EGH, a strong and large regional African banking group. BCDC will also gain from transfer of best practices and technological know-how,” said Mik Kabeya, an analyst at Moody’s Investors Service.
Equity Group’s Kenyan subsidiary has been successful in using digital technologies and alternative distribution channels, including mobile and agent banking.
BCDC is thus set to ride on this to be more efficient as it builds up its capital and liquidity levels.
It is estimated that BCDC’s combined DRC operations, made up of a balance sheet worth US$1.5 billion and a market share of more than 20per cent will enable it to compete in a market dominated by Rawbank S.A with 24% market share and assets worth of US $1.7 billion as at the end of 2018.
BCDC’s large size is also expected to lead to economies of scale and higher revenue, creating potential synergies and cost reductions, while improving its ability to make sizable investments in compliance and digitization.
Equity Group has an ambitious strategy of diversifying and expanding its operations geographically to serve 100 million customers by 2024, up from 13.5 million at year-end 2018.