State Bank of Mauritius (SBM) – Fusion Capital Analysis

NAIROBI (Capital Markets in Africa) – Fusion Capital has carried a detailed analysis of the State Bank of Mauritius (SBM) as we believe this is critical to both depositors and public at large. Following is a summary of the analysis.

SBM Holdings ‘SBM’ was founded in 1973 by the Government of Mauritius and was listed in the Stock Exchange of Mauritius ‘SEM’ in 1995. The Bank is engaged in banking, non-banking financial services and non-financial investments. As at 31st December 2017, the bank had a market capitalization of USD 581 Million.

The Government of Mauritius directly and through state corporations has a controlling stake of 70.4% in the Bank which has a one-tier or unitary structure and presently comprises eight non-executive directors of which six are independent non-executive directors with broad experience across the various sectors of the economy.

In our view, SBM is strong financially with reasonable Cost to Income and Profitability ratios. The Bank is well run and the funds are utilized efficiently. As at 30th September 2017, the Bank’s cost to income ratio was 44.83% compared to an average of 53.62% for its Kenyan peers. For the same period, the Bank posted an ROE of 21.84% with the Kenyan average being 12.84%. With an asset base of USD 5.328 Billion as at 30th September 2017, the Bank would rank second only to KCB, with total assets of USD 6.438 Billion, in East Africa and would be ranked a Tier I bank.

In 2016, SBM entered the Kenyan market through a 100% acquisition of a Tier III bank, Fidelity Commercial Bank, which had a market share of 0.4% at the time. Fidelity Bank was rebranded to SBM (Kenya). After this deal, they injected a fresh capital of Kes 1.5B (USD 15B) as the Bank was below statutory minimum capital requirements of Kes 1 Billion (USD 10 Million) required for any bank operating in Kenya. The entry into Kenya to them would operate as a gateway to the rest of Africa.

Recently, SBM offered a Binding offer to take over 75% of Chase Bank’s Assets and Liabilities through a carve out a portion of Chase Bank Kenya. This Binding offer was accepted by the Central of Bank of Kenya on 4th January 2018 and is expected to be operationalized in the next few weeks.

According to Michael Kimondo, Executive Director – Asset Management at Fusion Investment Management, “The latest offer, which is expected to be concluded within Q1 of 2018, is a deal for SBM. This effective acquisition of the best 75% of Chase bank is believed to be a low-risk venture an indication of very smart management.” He continued to say “this is a very attractive deal for SBM, a very easy way for them to grow their Kenyan market share, before proceeding to the rest of Africa.”

We believe this deal is good for depositors as it will guarantee access of 75% of their deposits over a period of three years. The Central Bank Governor commented that he does not expect a haircut on the portion of deposits remaining in Chase bank (25%). We expect that the assets which will remain in Chase Bank – which include 100% of all related parties’ assets, will be enough to cover the remaining deposits although this may take time. Exact visibility on the assets which will remain in Chase is still unclear, but we believe it should be sufficient to cover the remaining 25% of deposits the bank will retain.

Please click State Bank of Mauritius (SBM) to Please download our detailed analysis.