The Co-operative Bank of Kenya seeks to acquire 100 per cent stake in Jamii Bora Bank (JBB) subject to regulatory approvals, the Central Bank of Kenya (CBK) has divulged.

Acknowledging receipt of the buyout proposal, CBK indicated that Co-operative Bank has expressed interest in acquiring 100 per cent of the financially struggling Jamii Bora, which has found it difficult competing with the big players in the banking sector.

“The proposed acquisition, which is subject to regulatory approvals will lead to the acquisition of 100 per cent shareholding of JBB by Co-op,” said CBK.

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Co-op commenced operations in 1965 and is predominantly owned by the 15 million-member Kenyan co-operative movement.

It was listed on the Nairobi Securities Exchange in 2008. It was ranked fourth out of 39 banks in terms of market share as of December 31, 2019, with a market share of 9.63 per cent with 159 branches in Kenya and South Sudan.

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 of December 31, 2019, with a market share of 0.12 per cent with 17 branches across the country.

Coop bank
Cooperative Bank of Kenya established in 1965 sets to acquire Jamii Bora Bank on a 100% stake. PHOTO: COURTESY

It’s worth acknowledging that Jamii Bora and other tier-three banks in Kenya have been having difficulties balancing their finances for the last three years now.

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.

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 KSh1.4 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.

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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 per cent compared to CBK’s minimum of 20 per cent as at the end of March 2018, leaving it in a liquidity deficiency of 31.1 per cent. This left it constrained in terms of issuing new loans.

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.