Equity Bank Group Managing Director and chief executive James Mwangi. FILE PHOTO | NMG This week Equity Bank disclosed plans for another acquisition in the Democratic Republic of Congo (DRC).
It has entered into negotiations to acquire a controlling stake in the Banque Commerciale Du Congo (BCDC). The lender has a chequered history in the DRC that goes back to early 1900s when it was then known as Banque du Congo Belge.
The bank’s 2017 annual report shows that two shareholders, the State and George Forrest (and his family), collectively owned some 92 percent of the financier.
In total, George Forrest—one of the richest men in Congo—and his family own 66.5 percent of the bank while the State owns some 25.5 percent. The balance is held by “other” investors.
A recent report by The Sentry, an American NGO co-founded by actor George Clooney, disclosed that the Kabila family first tried to take control of the financier in 2013.
According to The Africa Report, quoting The Sentry, “the Kabila family and its allies, operating through an intermediary, first made Forrest an offer of $50 million in 2013 for his family’s shares”.
George Forrest declined the offer, the report goes on to speculate. They would make a second bid in 2015.
It is the Forrest family that Equity Bank is probably talking to.
But history aside, this second layer acquisition (first layer being the entry acquisition of ProCredit Bank back in 2015) is an implicit admission that building a critical mass without strong balance sheet is proving to be a daunting task for Equity Bank (and indeed I expressed the same concerns at the time).
Indeed, the DRC is a big-ticket market and balance sheet remains a key value proposition.
In the DRC, low banking penetration – only about seven percent of the population hold a bank account – and a lack of robust credit referencing, have pushed banks to focus only on those they deem as good quality borrowers, and these are usually the large corporates and State-owned enterprises (SOEs).Financing needs of these clients are large and often require a bank to have a strong balance sheet (hence the expression big-ticket).As I tweeted on the material day of the announcement, this transaction, if consummated, will see Equity Bank become the second largest balance sheet in the DRC, a feat that will likely accelerate the bank’s return on tangible capital.But outside of Kenya (Kenya being a unique market in many aspects), […]