Banking sector set for mergers as lenders eye business growth
A KCB banking hall. Lenders are hunting for growth opportunities locally and the rest of Africa. PHOTO | FILE
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Rising capital requirements across the continent are likely to force consolidation within the banking sector.
The banking industry is expected to witness increased mergers and acquisitions as lenders seek higher growth opportunities, The Banker magazine owned by, The Financial Times says.
The London-based magazine also identified rising capital requirements across the continent as likely to force consolidation within the market.
“A number of Africa’s burgeoning banking hubs, including Kenya and Morocco, are likely to be the source of further outbound acquisitions as their domestic banking markets mature and local lenders push further afield in the hunt for higher growth opportunities,” said The Banker a week ago.
On Tuesday, Fidelity Bank announced British private equity and asset management firm Duet Group had acquired a significant stake in the small lender while Equity Bank, KCB and I&M have already announced plans to make acquisitions.
Fidelity Bank will receive a Sh1.9 billion from the sale bolstering its capital position which was narrowly above mandatory requirements following an increase in adequacy ratios last year.
Mid-sized lender I&M is set to acquire Giro Bank with the transaction expected to be complete in the first quarter of the year. I&M is looking at using the acquisition to expand its branch network.
Equity plans to use acquisitions to enter three new markets on the continent as it eyes being in ten countries in the next 10 years.
Last year, it acquired a 79 per cent stake in ProCredit, the seventh largest bank by assets in the Democratic Republic of the Congo in a deal estimated at Sh6 billion.
Other African countries including South Sudan, Uganda and Rwanda, have also been increasing their banking capital requirements as they push to strengthen their industries making it more costly for Kenyan lenders entering those markets.
KCB’s management has been quoted by media outlets as being on the lookout for possible targets in Kenya.
Standard Investment Bank head of research, Francis Mwangi, though said he did not expect acquisitions of small players by large banks as such moves were not likely to drive their business.
“Peer to peer, that is easier because it will lead to elevation to the next tier but what will a large banks get in return going downwards?,” poised Mr Mwangi.
As the gap between the large banks and their smaller rivals in the Kenyan market continues to widen, mid-sized lenders are feeling the pressure to consolidate to capitalise on economies of scale and remain relevant.
The government is mulling over merging National Bank, Development Bank of Kenya and Consolidated Bank, which it owns in a bid to take advantage of having a large lender.
Kenya’s banking market has been attractive to foreign investors owing to its high returns on equity largely driven by wide interest spreads and low operational costs as lenders rely more on technology and agency banking.
Pakistani lender MCB Bank was eyeing acquiring a Kenyan lender as it looked to enter the market before the deal fell through.
Recent acquisitions in the banking industry include the 75 per cent purchase of Equatorial Commercial Bank by Mwalimu Sacco and Nigerian Guaranty Bank acquiring Fina Bank.
Norway’s investment fund for developing countries, known as Norfund, in partnership with NorFinance, an investment firm created by Norfund and private investors, purchased a 12.22 per cent stake in Kenya’s Equity Group Holdings for an estimated Sh26 billion from private equity group Helios Investments.
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