Delay to approve I&M takeover of Orient cost bank Shs10.7b
In 2021, I&M, which is based in Kenya acquired Orient Bank. Photo / File
What you need to know:
- I&M indicated in its annual report that its acquisition of Orient Bank was delayed by at least four months
I&M Group estimates that a four-month delay to approve its acquisition of Orient Bank cost the Ugandan subsidiary more than Sh10.7b in the period ended December 2021.
In details contained in the bank’s 2022 Annual Report, I&M indicated that although it operated for only eight months in 2021, it earned about Shs26.6b, which could have risen to Shs37.3b had the acquisition been completed by January 1, 2021.
“In determining these amounts, management has assumed that the fair value adjustments, determined provisionary, that arose on the date of acquisition would have been the same if the acquisition had occurred on January 1, 2021,” the report reads in part, noting the subsidiary earned Shs26.6b, about Sh10.7b less of the full year projected income of Shs37.3b.
In March, I&M completed the acquisition of a 90 percent stake in Uganda’s Orient Bank in a deal worth Sh96.8b.
Bank of Uganda (BoU) declined a request to explain the alleged delay, with Mr Adam Mugume, the BoU director for research, indicating that the Central Bank does not discuss individual financial institutions.
It was not immediately clear what could have caused the delay in the acquisition.
I&M Group has also indicated that since the acquisition it invested in the Ugandan subsidiary, increasing its investment by 19 percent last year in order to meet new capital requirement and bring it into compliance with Bank of Uganda regulations.
Last year, the report noted, I&M invested an additional Shs14.4b, in addition to Shs7.52b in subscriptions from investors, in a Shs21.8b package.
However, the report indicated that whereas the bank was as of December 31, 2022, compliant with minimum paid up capital, it “was breaching on the minimum capital funds unimpaired by losses”.
The increase in capital comes five months after Finance Minister Matia Kasaija signed a statutory instrument raising the capital requirement for commercial banks from Shs24.8b to Sh150b.
The increase, Bank of Uganda has previously indicated, seeks to insulate commercial banks from economic shocks as well as align the sector with regional peers.
The revised minimum capital requirements require commercial banks to have raised paid-up capital of at least Shs120b by December 31, 2022, and increased to Shs150b by June 30, 2024.
Additionally, it required that by 2024, core capital or minimum capital funds unaffected by losses should total to at least Shs150b.
As of December 31, 2022, I&M had an excess of Shs800b for paid-up capital but with a deficit of Shs1.23b for the minimal capital funds unimpaired by losses.
This prompted it to submit to Bank of Uganda its capital restoration plan, which concentrated on accelerating recoveries of significant bad debtors, shareholder commitment to inject capital, and conversion of already held preference shares into paid-up cash capital, within the statutory deadlines.
I&M, the report indicates, has also had to carry out strategic initiatives as part of compliance in order to enhance performance and naturally increase its capital reserves.
The bank had to make sure it complied with all these before June 30, 2023.
“The above actions were approved by the Board of Directors on February 13, 2023 and submitted to Bank of Uganda the following day,” the statement reads, adding: “Bank of Uganda issued a no-objection to the bank’s capital restoration plan on February 20, 2023.”
