NAIROBI, Dec. 10 (Xinhua) -- A move by two Kenyan banks with branches across the east African region to merge their operations has been lauded by analysts, who have noted that the consolidation creates stronger entities with potential to spread into new markets across the continent.
Commercial Bank of Africa (CBA) and NIC Bank last week announced that they are in talks on a potential merger subject to due diligence processes and approval from shareholders and regulators who include the Capital Markets Authority and the Central Bank of Kenya.
CBA is a Tier I bank with an asset base of 242.6 billion shillings (2.28 billion U.S. dollars) while NIC is a Tier II bank with an asset base of 1.97 billion dollars as of quarter three of 2018.
NIC has 44 branches, a majority in Kenya, and others in Tanzania and Uganda and similarly, CBA has 50 branches across the region, including in Rwanda, Tanzania and Uganda.
The consolidation would make the bank the second largest in Kenya in terms of market share with a potential of over 30 million customers across the region.
"We expect that the merger will provide an opportunity for the new entity to grow by tapping into both retail and corporate banking," Cytonn, a Nairobi-based investment firm said in a brief on Monday.
"With a potential combined market share of 11 percent by total deposits, the new entity upon merger would be the second largest by market share, second only from Kenya Commercial Bank (KCB) that commands approximately 15 percent," it said.
The firm noted that the new entity would have a strong position to play an important role in the Kenyan and regional banking sector.
"We expect enhanced growth of the new entity in various aspects of banking and wealth management by consolidation of CBA's strength in retail banking and NIC's corporate banking expertise," said Cytonn.
The two banks, according to the investment firm, will leverage on the new entity's sturdy balance sheet brought about by capital consolidation and strong liquidity, to capture strategic growth opportunities, providing the capability to undertake large transactions.
Henry Wandera, an economics lecturer in Nairobi, noted that acquisitions and mergers in Kenyan banking industry, which had taken a hiatus since 2016 when they picked up following the introduction of the law to cap interest rates, would help solidify the industry, which has 41 banks.
"I believe Kenya is overbanked because we have 41 institutions as per the last Central Bank's filings but only three or four institutions serve the bulk of Kenyans," he said. "The rest are smaller banks whose impact is little felt in the sector. Mergers provide such institutions with a chance to plan a bigger role in the industry."
Wandera observed that with more consolidation, Kenyan banks would have a stronger capacity to expand their operations across the region and continent, venturing into new markets that include Somalia.
The analysts expect the mergers and consolidation of the Kenyan financial institutions, which the government has encouraged, to continue in the near term.
"We are of the view that the industry should and will see more consolidation, as smaller banks with depleted capital positions are acquired as their performance deteriorates due to the sustained effects of the Banking (Amendment) Act 2015," said Cytonn.
"We note that the industry needs fewer but stronger players to ensure the sector remains stable," the firm added.
Some of the acquisitions and mergers that have taken place in the industry in the past months include Diamond Trust Bank Kenya buying Habib Bank (K) Limited, Giro Commercial Bank was acquired by I&M Holdings while Oriental Commercial Bank was acquisitioned by Bank M of Tanzania.
On the other hand, SBM Holdings of Mauritius acquired financially troubled Chase Bank while KCB, which has subsidiaries in Uganda, Tanzania, Rwanda and South Sudan, is working on buying collapsed Imperial Bank.
