The second largest bank in Mauritius by market share, SBM Holdings, is at an advanced stage of acquiring a Kenyan bank as a launchpad into the East African market.

The Indian Ocean island nation-based bank plans to grow its international business by 30 per cent annually over the next five years, according to an advisory report by McKinsey & Co.

SBM Holdings chairman Kee Chong Li Kwong Wing told Reuters that his company was in talks to acquire a bank in Kenya.

“We are in talks to acquire a viable Kenyan commercial bank,” said Mr Wing. “This will help us extend our footprint in East Africa.”

SBM Holdings already has a representative office in Nairobi.

Assets of about $3.68b

The bank, which had assets of about $3.68 billion as at September last year, has a footprint in India, Madagascar and Mauritius. It also plans to set up a unit in the Seychelles.

The Mauritian bank is expected to announce full year earnings of $78 million.

“We are awaiting a commercial banking licence in the Seychelles,” said Mr Wing. “Through these two new units, we should be able to grow our share of international business.”

Data from the National Bank of Mauritius shows that banks in the country have excess liquidity of $309 million.

Nigeria’s United Bank of Africa (UBA) was the last lender to acquire a licence to set up operations in Kenya, in 2009. Since then, most banks have entered the market through mergers, acquisitions or buying stakes in existing banks.

In 2013, Fina Bank was acquired by Nigeria’s lender GT Bank through a share purchase and direct investment in a deal valued at $100 million.

In December last year, Central Bank of Kenya suspended the licensing of new banks indefinitely, in the hope that the moratorium would provide an opportunity for lenders to improve their business models, as it pushes the low-tier banks towards consolidation in order to enhance efficiency and long-term sustainability.

READ: Q&A with CBK Governor Patrick Njoroge

Analysts said Kenya has proven a difficult market for greenfield operations in all sectors and SBM’s option to acquire a running operation was based on this. In contrast, SBM has applied for a licence in the Seychelles, which it hopes to get next month.

Industry insiders declined to name the target bank but it is expected to be in the medium to small category.

Immediate returns
Analysts said a High Street bank would offer the acquirer immediate returns but make it more difficult for the new owners to impose their corporate culture.

“Buying into a Tier One or upper Tier Two bank has its benefits but it limits the new owners’ ability to change strategy quickly,” said an analyst.

The expert added: “Buying into smaller operations gives more flexibility in laying a foundation for long-term growth.”

Mr Wing said the bank saw a lot of potential in international business that would be harnessed through the expansion. SBM also has a representative office in Myanmar.

“In the long run, SBM has placed an option on Myanmar following the removal of international sanctions,” he said.