The Democratic Republic of Congo’s central bank, Banque Centrale du Congo, is not making life easy for Kenya’s Equity Group Holdings (EGH).
Just as the merger of Equity Bank Congo with the country’s second-largest bank, Banque Commerciale du Congo (BCDC), which it agreed to acquire, was getting under way, the bank regulator is putting a spoke in the transaction’s wheel.
Central bank governor Jules Bondombe Assango addressed a letter dated 19 January to the BCDC’s chair of the board detailing his reaction to a previous “memo sent by Mr James Mwangi to the staff of the new entity, Equity BCDC SA”.
Last August, EGH completed the acquisition of a 66.53% stake in the capital of BCDC at a cost of KSh10.4bn ($95m).
At the end of December, the Kenyan financial services giant – which reported revenue of KSh76bn in 2019 – received the green light to merge its banking network with the newly acquired company, thereby increasing its stake in Equity BCDC to more than 77%.
At this point in time, what that means is that the merger is considered complete from a legal standpoint. Operationally speaking, it is in the final stages.
Nevertheless, the central bank laid into the Kenyan company in a recent missive: “After a thorough analysis, we have determined that the decisions announced by the chair of the board of EGH in his memo to staff were taken unilaterally and do not comply with the legal and regulatory provisions bearing on the corporate governance of financial institutions operating in the DRC.”
An issue of procedure
At issue for the authority was an internal memo it obtained in which the Kenyan chief executive had outlined a number of decisions pertaining to the merger proceedings.
The problems identified by the central bank included EGH’s announcement of its plans to “integrate the BCDC’s operations and data into the Equity Group platform”, “set up an initial management committee” and appoint two managing directors, Yves de Cuypers (the current managing director of BCDC) and Célestin Mukeba (managing director of Equity Bank Congo – formerly ProCredit Bank Congo prior to Equity’s acquisition of the lender in 2015).
According to a financial analyst who closely follows Africa’s major banking institutions: “These decisions should have emanated from the board and/or the general meeting of the newly formed entity, Equity BCDC, instead of from the chair of the holding company.”
He adds: “Apart from the decision relating to the two managing directors, most of the decisions singled out by the central bank are an issue of procedure regarding the merger proceedings rather than an issue of substance.”
Reassuring customers and investors
The Kenyan banking group indeed made an unconventional choice where the new entity’s leadership is concerned. Customarily, the managing director of the acquirer becomes managing director of the merged entity, but Equity opted to place both the managing director of the acquirer and of the acquired bank on an equal footing.
The Congolese central bank expressed its disapproval of this decision, explaining that “Legal and regulatory requirements do not allow for two managing directors to oversee one institution.”
Though Equity took this decision “unilaterally”, many observers do not view it in a negative light, as the Nairobi Securities Exchange-listed financial services group sought to reassure its customers and investors. EH is seeking to send the message that even with the merger and resulting synergies, the group’s leadership is stable.
Taking over the top spot
However, the incident shows that there is a wrinkle in Mwangi’s plan to merge the two lenders into the DRC’s leading banking institution by the end of 2021 and a larger bank than Equity Bank in Kenya within five years.
In recent months the Kenyan banker was open about his ambitions in the country, but the central bank appears to want to chill Equity on this front, writing:
“The person who signed the memo sent to Equity BCDC’s staff has neither the title nor the capacity to make decisions on behalf of the institution. In this regard, Mr Mwangi, chair of the board of EHG, is only the representative of a shareholder and has not been mandated by the acquiring company to make decisions on its behalf.”
Further in the letter, the central bank again reminded the group of its duty to comply with the laws and regulations in force in the country.
According to another industry expert, pointing out in passing that the merger of Equity Bank Congo and BCDC was approved by the bank regulator on 29 December 2020, argues the central bank governor has taken one step forward and two steps back with this letter. That said, the authority refrained from questioning the validity of the merger from a legal standpoint.
EGH’s management did not respond to a request for comment.