CBK signals end to licensing freeze with nod for Dubai bank

Economy & Politics

Dr Patrick Njoroge,  CBK governor. FILE PHOTO | NMG

Dr Patrick Njoroge, CBK governor. FILE PHOTO | NMG 

The Central Bank of Kenya (CBK) yesterday signalled its intention to lift the moratorium it had imposed on the licensing of new banks, saying it had started processing one local and one foreign application to set up operations.

The CBK said it would finalise its approval of DIB Bank Kenya owned by UAE’s largest Islamic bank Dubai Islamic Bank (DIB) and Mayfair Bank Limited associated with wealthy Kenyan politician and Nairobi gubernatorial aspirant Peter Kenneth.

“The Central Bank of Kenya (CBK) announces its intention to finalise the processing of licence applications for two institutions that had been granted an ‘approval in principle’, as a first step to lifting the moratorium on licensing of new commercial banks,” the regulator said in a statement without offering timelines.

“Accordingly, DIB Bank Kenya Limited (In Formation) and Mayfair Bank Limited (in formation) will take the remaining steps to finalise their licensc applications.”

The decision is seen to highlight the CBK’s confidence in the stability of the banking sector, which has been experiencing turbulence in the past couple of years, causing the collapse of three lenders in a row.

The CBK suspended the licensing of new banks on November 17, 2016, saying it needed to strengthen oversight before admitting new players in the market.

The decision came two months after the closure of the then 28-branch-strong Imperial Bank that followed the collapse of Dubai Bank under the weight of banking malpractices.

The moratorium stopped the issuing of new permits, excluding mergers, takeovers and acquisitions.

The banking crisis peaked with the placement of Chase Bank under statutory management last April.

Chase has since re-opened under KCB and Kenya’s deposit insurer’s management while Imperial Bank has been paying its large depositors part of their money through NIC Bank.

The collapse of three banks in succession threw the industry in a major crisis, causing the regulator to enhance its supervision of commercial and microfinance banks.

Last November, however, CBK Governor Patrick Njoroge said the banking sector had made huge improvements over the past year, adding that the regulator’s supervision department had improved its monitoring capacity.

“We have made huge improvements so far and I am glad to say that the moratorium will be lifted very soon,” Dr Njoroge said during a press briefing.

Yesterday, the CBK said the expected entry of Mayfair Bank, which it noted is owned “by a diverse group of Kenyan investors with interests in various sectors,” and the launch of the local arm of the Dubai Islamic Bank will boost the Kenyan financial sector.

“The entry of these banks on the fulfilment of all the pre-licensing conditions will expand the range of banks’ business models and underscore Kenya’s growing stature as a regional financial services hub,” said the CBK.

Analysts said the CBK’s decision to restart licensing new banks signals a return of stability in the Kenyan banking sector.

“I believe the decision to process Dubai Islamic Bank and Mayfair Bank is informed by the desire to maintain the dynamic nature of Kenya’s banking system. It is also a subtle signal of strength,” said Aly-Khan Satchu of Rich Management.

“The moratorium is now behind us and new niche and well-capiltsalised banks have a part to play.”

The lifting of the licensing moratorium comes as good news for international banks that have been making overtures to Kenya.

The ban had left the mergers and acquisitions window as the only option for new entrants seeking a stake in the local banking sector.

The proposed Dubai Islamic Bank headquarters in Nairobi. FILE PHOTO | NMG

The proposed Dubai Islamic Bank headquarters in Nairobi. FILE PHOTO | NMGNMG

New York-based lender JPMorgan Chase is among the lenders that had expressed interest in setting up a representative office in Nairobi.

Qatari National Bank (QNB) has been advertising its financial results in local dailies for the third year in a row, although its intentions remain unclear.

The group has expressed an interest in arranging a Sukuk (sovereign bond) for Kenya.

When Kenya floated the Eurobond last year, QNB Capital placed a bid of $200 million (Sh20.4 billion).

It is expected that with the CBK nod, Dubai Islamic Bank, which had already hired a chief executive and recruited over 30 employees to help it set up base in Kenya prior to the ban, will hit the ground running.

The CBK last June cleared the acquisition of a 51 per cent stake in the shareholding of Oriental Commercial Bank by Bank M of Tanzania, paving the way for its entry into Kenya.

The regulatory approvals saw Bank M of Tanzania, become the first Tanzanian lender to enter the Kenyan market after 73 per cent of its shareholders under the M Holdings Group agreed to buy the stake in Oriental Commercial Bank.

SBM Holdings, Mauritius’s second-biggest lender, has got approval to acquire Fidelity Commercial Bank and kick off an expansion in East Africa.

British firm CDC concluded an acquisition deal with I$M Bank after fulfilling the necessary conditions last year.

With over 40 licensed lenders, Kenya boasts one of the highest ratios of banks relative to population in the world.