Nigeria’s Keystone Bank sells stake in Orient, exits Uganda

Saturday March 7 2015

Entrance to Orient Bank headquarters in

Entrance to Orient Bank headquarters in Kampala. PHOTO | FILE | NATION MEDIA GROUP

By SPECIAL CORRESPONDENT 

The sale by Nigeria’s Keystone Bank of its 80 per cent stake in Orient Bank marks another exit from Uganda’s financial sector by a player from the West African economic powerhouse, following the closure of Global Trust Bank last July. 

Unlike Global Trust, which was wound down to protect depositors’ interests due to the bank’s failure to shore up its capital position, the Orient sale is part of the unbundling of assets that PHB Bank, which is currently under administration, had acquired. 

Orient founder Ketan Morjaria, who kept 20 per cent stake when he sold the majority shares to PHB in 2009, bought back into the bank, increasing his equity to 49 per cent, the maximum allowed by industry rules. 8 Mile, a private equity fund associated with Irish musician and activist Bob Geldof, acquired 42 per cent of the bank. Two other investors acquired the rest of the equity.

The amount paid for the 80 per cent stake was not given but an official familiar with the transaction told The EastAfrican that it was the highest bid in a competitive process, and that “all the bids were a multiple of the book value of the bank.” 

Under Nigerian majority ownership, Orient Bank has grow its asset base from around $123 million to $173 million, and customer deposits from about $95 to $139 million, while branches grew from 14 to 23. 

However, after two decades of profitability, the bank reported a loss of Ush16 billion ($5.4 million)  in 2013, which officials attributed to general market weakness, especially a liquidity squeeze in South Sudan, a key export market for Ugandan traders. 

“Difficulty in collecting payments from South Sudan has hit traders, including many who are our customers,” a senior official in the bank, speaking on condition of anonymity said. 

The PHB’s initial business plan was praised by many sources and Orient was initially one of its most successful investments, with the Nigerian bank promising to grow Orient, then a small-tier player, into the top five banks in five years.  

However, after PHB Bank went into administration in Nigeria, partly driven by poor loan book risk management, the managers, appointed by Keystone, which itself had been mandated by the Asset Management Corporation of Nigeria to find a buyer for the bank within two years, “appeared to take their eyes off the ball,” according to an industry official, who also spoke on condition of anonymity. 

For instance, The EastAfrican has learnt that a senior bank executive seconded to the Kampala unit was forced to pay taxes to the Uganda Revenue Authority after a raid on his house near the heart of the capital found smuggled rice hidden in his garage.  
URA officials confirmed that it was a personal infraction by the senior official that had nothing to do with the bank. Another senior executive seconded to run Orient Bank returned to Nigeria after she failed to pass the fit-and-proper test by the central bank. It is not clear whether tabloid revelations about her personal life contributed to the regulator’s decision. 

It is also not clear what impact management had on performance, but Philip Ikeazor, the CEO of Keystone Bank, told Bloomberg last August that the decision to sell their stake in Orient Bank and subsidiaries in Liberia and Sierra Leone was driven by a large proportion of non-performing loans and their unwillingness to recapitalise the operations.  

The buy-back allows Mr Morjaria, who is also a founder and shareholder in Credit Bank, Kenya, a second chance to grow the bank’s profitability and market share. The bank is currently ranked 13th by asset base. 

“This strategic alliance with 8 Miles represents a new beginning for Orient and we look forward to working with their team in restoring the fortunes of the bank,” he said last week.

Nigerian investors have flocked into Uganda’s financial sector through mergers, acquisitions and greenfield operations, including UBA Bank and National Insurance Corporation, where Industrial and General Insurance is a majority shareholder. 

However, after the closure of Global Trust Bank last year and NIC’s struggles to recover lost market share, Keystone’s exit from Orient Bank is a reminder of the challenges Nigerian firms have to overcome to compete against the longer-established foreign banks that dominate Uganda’s financial sector.

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