The Investment Fund for Developing Countries (IFU), a Danish investment firm, has injected a total of 1.2 billion shillings into the loss-making Sidian Bank.
The bank, which has shown dismal performance over the last two years will benefit from the boost by raising its core capital.
The lender’s core capital dropped from 23.1 percent in 2016 to 13.9 percent in the third quarter of 2018.
IFU, through the tier two capital, will now own 20 percent stake in Sidian Bank making it the second largest shareholder after Centum, which owns 73 percent stake in the bank.
“They are initially coming in as investors through tier two capital of Sh1.2 billion and it gives them entitlement to convert to shareholding within the stipulated time,” Chege Thumbi, Sidian Bank Chief Executive said yesterday.
He also added that once they convert, they will have a stake of slightly more than 20 percent and together with Centum they will be the two main shareholders in Sidian Bank.
The lender noted that the funds will be used to boost the bank’s regulatory capital ratios as it works toward achieving the objective of becoming a tier two institution by the year 2022.
Sidian Bank’s assets are set to grow by an additional 10 billion shillings to 35 billion shillings following the capital injection, the shareholders’ approval of a rights issue of 1.5 billion shillings and a tier 2 capital raise of 1.2 billion shillings.
“The money is to help us to be able to do more business and not to address liquidity or anything like that. If you look at the capital adequacy of the Central Bank, for every shilling that you put in as a shareholder you can lend eight times,” said Mr. Thumbi.
Thumbi stated that with capital growth, the bank is at a better position to do more business with SME’s micro-finance as well as corporates.
“Sidian Bank’s growth has been significant, especially on the non-funded business, which moved from slightly below 7 billion to 16 billion shillings,” he concluded.