Family Bank eyes expansion after a successful corporate bond issue

KENYAFamily Bank plans to expand its presence to all 47 counties in Kenya as it gears up for tier-1 status in the next three years, with the drive being funded by the proceeds of its corporate bond that started trading on the Nairobi Securities Exchange (NSE) on 30th June 2021.

The tier-II lender said it would use the funds to increase its branch network from the current 92 outlets in 37 counties, widening its presence and customer base as it also considers an initial public offering proposal.

“We target to be in every county though we recognise that it’s not a determinant to be a tier-1 or II bank,” said Family Bank chief executive Rebecca Mbithi during the bell ringing ceremony for the bond at the NSE.

The bank raised Sh4.42 billion (US$41 million) against a Sh3 billion (US$27.8 million) target in the bond issuance that has a maturity of 5.5 years and has also been given the green light to raise an additional Sh1 billion as a greenshoe option in the offer that is the first tranche of a Sh8 billion (US$74.1 million) medium-term note by the market regulator, Capital Markets Authority.

“The capital raised will to support the digitisation of the bank’s operation to grow and scale out customer numbers, strengthening balance sheet to increase lending to SMEs and finance its regional market entry,” said Ms Mbithi.

The mid-tier lender’s chairman Wilfred Kiboro said the success of the bond would help in the efforts to become a top tier lender by strengthening the balance sheet and capital ratios.

“We are incredibly happy that investors had the confidence to come and invest with Family Bank, and it shows the economy is picking up. The purpose of this to help with our balance sheet and capital ratios and grow as a bank. Our intention is to become a tier-1 bank within our plan to 2024,” he said.

The bank had in 2015 floated another bond which has matured and been redeemed, that allowed it to expand from 30 counties to the current 37 and grow from 1.6 million customers at the time to more than 2.4 million today.

The issuance came after the bank posted a 71.2 percent growth in net earnings to Sh510.17 million (US$4.73 million) in the three months to March 2021.

“The purpose of this to help with our balance sheet and capital ratios and grow as a bank. Our intention is to become a tier-1 bank within our plan to 2024”

Rebecca Mbithi – CEO, Family Bank

In April 2021, Family Bank has fully settled the interest and principal of the Sh2.019 billion (US$18.7 million) medium-term note that it borrowed five years ago to fund growth.

The lender tapped into the bond market in September 2015 to raise money for branch expansion, investment in ICT software, loan book growth and strengthening its capital base.

Family Bank’s redemption of its medium-term notes now leaves the value of outstanding corporate bonds trading on the Nairobi Securities Exchange (NSE) at below Sh19 billion (US$176 million).

The outstanding bonds include those issued by Stanbic Bank, NCBA, East African Breweries and Real People and Centum Real Estate Limited.

Activity in the corporate bond market in the years leading to 2015 was fairly active until defaults and fraud by Chase Bank and Imperial Bank hurt investor confidence and subsequently discouraged new debt issues.

Centum Real Estate’s Sh2.96 billion (US$27.4 million) and Acorn Project’s Sh2.03 billion (US$18.8 million) bond that were issued in November and October 2020 respectively marked the latest additions on the NSE but were both marked by under subscriptions.

Other firms in which debt investors have lost money include Nakumatt Supermarkets, Athi River Mining Cement and Kaluworks.

With reduced enthusiasm for corporate bonds, companies have turned to alternative sources of funds to fuel their growth which include taking loans from local banks and development finance institutions and shareholders besides selling stakes to private equity firms.

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