Equity seals deal to become biggest foreign bank in DRC

Tuesday August 18 2020

bank

Equity Bank customers queue for services at a branch in Nairobi. The lender has acquired a second DR Congo bank. FILE PHOTO 

The EastAfrican
By The EastAfrican
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Equity Group Holdings Ltd is set to become the Democratic Republic of Congo’s biggest foreign bank after completing its acquisition of BCDC — the country’s second-largest lender.

Equity Bank, which is listed on the Nairobi Securities Exchange (NSE) and cross-listed on the Uganda and Rwanda stockmarkets, already has a foothold in the DRC through Equity Bank Congo, re-named after the acquisition of 86 percent shareholding of ProCredit Bank between 2015 and 2017.

The combined BCDC and Equity Bank Congo balance sheets will give the lender a total assets base of $2 billion, only second to Rawbank, which had an asset base of $2.1 billion as at December last year.

ProCredit had German roots, while Banque Commerciale Du Congo (BCDC) was majority-owned by a Belgian family.

“We have been very lucky to have acquired two strong European banks in DRC — ProCredit and BCDC.

These banks were developed using European standards and supervised by European regulators. BCDC is listed in Belgium. We have denied competition any easy entry into that market, so competition will be very low for us because we shall be competing against indigenous family banks,” said Equity Group CEO James Mwangi in an interview.

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Equity Bank, which is Kenya’s second-largest lender by profitability, last week completed the acquisition of a 66.53 per cent stake in BCDC, at a cost of $95 million.

BCDC was majority-owned by Belgian entrepreneur, George Arthur Forrest and family (66.53 per cent) and the government of the Democratic Republic of Congo (25.53 per cent), while the remaining 7.94 per cent shares are owned by other minority shareholders.

Equity Group last year increased its shareholding in Equity Bank Congo to 93.6 per cent by acquiring an additional 7.6 per cent of shares held by the German State-owned development bank, KfW.

The remaining 6.4 per cent shareholding in EBC S is held by the World Bank’s private sector lending arm, the International Finance Corporation (IFC).

“Certainly by next year we believe the amalgamated Equity in DRC should be the biggest bank in DRC and that gives it two things: Big economies of scale and big capability to address the financial needs of the market and hence will be attractive to the mining industry.

ssentially you notice that the merged group will be close to 40 per cent of the size of Equity Bank Kenya. If we experience the same growth what it means is that in five years I would expect the DRC subsidiary to be bigger than Equity Bank Kenya. That is my prediction and this I’m unlikely to be wrong,” said Mr Mwangi.

Second foray

The lender partnered with IFC in making its second foray into the Congolese banking market in a plan mooted to give the bank financial muscle to engage in commercial lending and project, equity and infrastructure financing in the mineral-rich central African nation.

The partnership is also expected to improve the Kenyan-based lender’s brand and provide a platform to attract international capital to bolster its lending business in the DRC.

“We have had a global interest and we are going there with IFC. You notice that IFC is our co-shareholder so that means the World Bank Group is partnering with us. For the World Bank Group to partner with us it shows the global interest in that country. That is what gives us confidence that this is a vital decision,” said Mr Mwangi.

“I think with the World Bank we can team up and provide solutions including infrastructure financing, equity financing and project financing and more importantly we would have the brand and reputation of financial reliability and capability.”

The EastAfrican has learnt that as part of the deal, the IFC will be acquiring the Congolese government’s 25 percent shareholding in BCDC.

“IFC is already a shareholder in Equity Bank DRC. We bought together with them ProCredit Bank. We have now persuaded them as we buy Mr Forrest Family’s shareholding of 66.53 per cent that they could take up the government’s 25 percent,” said Mr Mwangi.

“We don’t just want to bring the Equity Bank capability but the World Bank capability as well such that we have a strong partner who can lead financial reforms, bring in trust, brand and reputation of the World Bank and a partner who can help us to be able to access global resources and capability.”

Strategic shareholder

According to Mr Mwangi, IFC’s global brand will help Equity Bank to attract international capital to support its lending business in the DRC.

“Through this partnership, we can do commercial lending while they (IFC) can do project financing. We can combine both short- term and long-term lending with IFC on board and that is why we think this marriage is made in heaven,” he said.

Equity Bank currently has operations in Kenya, Rwanda, Uganda, Tanzania, South Sudan, DRC and a commercial representative office in Ethiopia, with over 14 million customers across the region.

Equity Bank is expected to own close to 80 per cent of the shares in the entity formed through the amalgamation of BCDC and Equity Bank Congo.

“We own 93 per cent of Equity DRC and 66.53 per cent in BCDC. I don’t want to be speculative but a merger of the two shows we would be a strategic shareholder with the controlling stake that can’t be less than 80 per cent.

Both banks are almost of the same size, you are talking of number two and number four so when you combine them on average they would give you a controlling share above 80 per cent,” said Mr Mwangi.

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