KISERO: Don’t dismiss reports on KCB-NBK merger

The CEO of Capital Markets Authority, Mr Paul Muthaura, put out a statement the other day implying that recent Press reports of an impending acquisition of the troubled National Bank of Kenya #ticker:NBK by the Kenya Commercial Bank #ticker:KCB were not true.

In a cautionary statement posted on CMA’s website, Mr Muthaura seemed to argue that since no regulatory filings had been made to the authority by the #ticker:KCB Group on the matter, plans for such an acquisition did not exist.

He advised members of the public to exercise caution when dealing with the shares of KCB and NBK.

I think Mr Muthaura acted prematurely in putting out the statement and by implying that the Press reports were untrue.

The fact of the matter is that a proposal to merge the two banks is on the table.

It is a fact that the National Treasury has already responded to the proposal in a letter by the principal secretary, Dr Kamau Thugge.

What has been going on currently are discussions between the two majority shareholders of the NBK - who are also significant shareholders of KCB - to rationalise their shareholdings in the two companies by consolidating the stakes in one bank.

The fact that the parties who are discussing how to rationalise their shareholdings have yet to file anything on the matter with the CMA, does not mean that the plans by KCB  to acquire NBK do not exist as  implied in Mr Muthaura’s statement.

We must remember that Mr Muthaura is not the only regulator in this space.

As a matter of fact, Central Bank of Kenya (CBK) #ticker:CBK is the primary regulator of all banks.

Then you have the Competition Authority  of Kenya (CAK), which must also have a say about this transaction on matters touching on monopoly and restrictive practices.

Just imagine how preposterous it would look and sound if the CBK or the CAK were to also jump into the fray by commenting on Press reports about the impending merger between the two banks.

Granted, Mr Muthaura can argue that he intervened to pre-empt speculative activity and unpredictable movement in the shares of the NBK and KCB between now and the time the transaction is consummated.

Indeed, there has been increased activity on the two counters since the news of the proposed merger broke out with signs that foreign investors were selling out.

Yet the statement Mr Muthaura put out fell short of giving investors full and accurate information on how the matter is likely play out and whether the transaction was indeed likely to happen.

Regulators are usually required to set out facts and information to the market, typically on decisions they have taken or declined to take.

The practice is that most regulators will not comment or give advice on particular stocks, especially because they license entities that give advice to investors.

In my view, the logic of the proposal to merge KCB and NBK is impeccable.

If the merger happens, it will set the stage for consolidation of banks.

Kenya is currently overbanked with approximately one million individuals per bank.

South Africa, with a larger population than Kenya, has half of our banks. Nigeria, with 180 million people, has just under 120 banks.

If the proposed merger of KCB and NBK happens, it will start the process of consolidation in our banking sector.

The merged entity could create the largest bank in Kenya with assets of over Sh750 billion.

But even more important, the acquisition will allow the taxpayers - and most significantly, contributors to the National Social Security Fund (NSSF) - the opportunity to recover lost value in the troubled NBK.