Management Magazine
Money Matters

Mergers heighten in the banking sector

We look at Kenya`s banking sector deals in the offing, how they are structured and how they will play out.

By MWAURA KIMANI

Kenya’s banking sector is set for massive realignments as a new wave of consolidation, mergers and acquisition takes shape. This is set to totally change the face of the industry that is also smarting from disruptions caused by financial technologies, which have among other things brought to the mainstream digital lending.

National Bank proposed acquisition

KCB Group sent shockwaves in the banking industry when they proposed to acquire 100 per cent of the ordinary and preference shares of National Bank of Kenya, a tier 2 listed lender. The acquisition will be via a 10-for-1 share swap, which will result in 147 million new KCB shares being issued. With KCB’s current share price at the Nairobi Securities Exchange, the transaction is valued at KSh6.6 billion. The acquisition will increase KCB deposit and loan market share by 2.9 per cent and 2.3 per cent, from 14.1 per cent and 18.6 per cent, respectively. The deal will increase KCB’s loan portfolio and deposit base by 10.5 per cent and 18.4 per cent, respectively. 

While announcing the deal late April, KCB Group CEO and MD Joshua Oigara said the transaction fits within the lender’s expansion strategy and gives it a stronger edge to play a bigger role in driving the financial inclusion agenda in the East African region while building a robust and financially sustainable organisation.

Activity consolidation

From the look of things, the banking sector has continued to witness consolidation activity, as players in the sector are either acquired or merged leading to formation of relatively larger and possibly more stable entities. The target has been largely tier 3 banks. Giro Commercial Bank was absorbed by I&M Bank in 2016 while Habib Bank Kenya was taken in by Diamond Trust Bank Kenya in 2017. Mwalimu Sacco purchased Equatorial Commercial Bank and rebranded to Spire Bank. The latest transaction that is under review includes Consolidated Bank, which is said to be under consideration for purchase by the Lake Region Counties.

In August 2018, State Bank of Mauritius (SBM) Kenya completed the acquisition of select assets and liabilities of Chase Bank Limited, which was under receivership. Following the agreement between the Central Bank of Kenya (CBK), Kenya Deposit Insurance Corporation (KDIC), and SBM Bank Kenya, 75 per cent of the value of all moratorium deposits at Chase Bank were transferred to SBM Bank Kenya. The remaining 25 per cent remained with Chase Bank. This was a major milestone in Kenya’s banking sector as it was the first successful instance, in the history of Kenya, of a bank being successfully brought out of receivership.

In April 2019, the CBK and the Kenya Deposit Insurance Corporation (KDIC) announced the acceptance of a binding offer from KCB Group, to acquire certain assets and liabilities of Imperial Bank Limited under Receivership (IBLR). The transaction will see an additional 19.7 per cent of deposits availed to depositors, an addition to the 35 per cent availed, on the acceptance of the binding offer by KDIC and CBK in December 2018.

“We note that the deal highlighted the continued attractiveness of the Kenyan banking sector, as banks, both local and foreign, drive their growth inorganically through mergers and acquisitions” said Cytonn Investments in a note to investors early April. “The completion of the Imperial Bank transaction, in our view, will continue to instil confidence in the banking sector’s stability, as it provides a remediation route for banks that have encountered turbulence in their operations, as well as safeguarding of depositors’ interests,” said Cytonn.

NIC-CBA Merger

In January 2019, the directors of NIC Group and Commercial Bank of Africa (CBA) announced their agreement to a proposed merger between the two banks.  The proposed merger is expected to be completed upon fulfilment of a certain set of conditions, with the merged entity expected to commence its operations at the onset of quarter 3, 2019. The proposed transaction will be executed through a share swap in the ratio of 53:47 between CBA and NIC, implying that shareholders of CBA Group will be entitled to own 53 per cent of the merged entity’s issued shares while shareholders of NIC Group will be allotted 47 per cent of the combined entity. CBA Group has also issued Jamii Bora owners with a buyout offer of Ksh1.4 billion, to acquire a 100 per cent stake in the bank. “We expect more consolidation in the banking sector, as the relatively weaker banks that probably do not serve a niche become acquired by the larger counterparts who have expertise in deposit gathering or serve a niche in the market. Consolidation will also likely happen, as entities form strategic partnerships, as they navigate the relatively tougher operating environment that,” said Cytonn.

Many independent analysts reckon that Kenya continues to be overbanked when compared to other countries, necessitating a reduction in the number of players in the sector through mergers and acquisitions, with larger players seeking to grow their market share and product offerings.

Mwaura Kimani is a freelance journalist based in Nairobi. Email: kimwaura@yahoo.com

Related posts

More cash or no cash

Derrick Vikiru

New era for banks in corruption purge

Derrick Vikiru

Informal lenders; a debt pitfall

Derrick Vikiru