Big banks seen swallowing smaller loss-making rivals


Equity Centre in Nairobi upperhill. FILE PHOTO | NMG

Ratings agency Moody’s says small Kenyan banks suffering losses or facing insolvency are likely to become targets of acquisitions by their larger rivals over the next one-and-a-half years.

The ratings firm says local lenders are witnessing a wide divergence in profitability, with 14 of the institutions in the smaller peer group reporting losses or negligible profits in 2020.

Big banks, which hog the industry’s earnings and assets, have been ready to acquire small struggling rivals to further solidify their market share in the local market.

“Some smaller banks face higher profitability, solvency and liquidity challenges and this is likely to prompt further merger and acquisition activity ahead,” Moody’s said.

Recent growth among Kenyan banks has come from buyouts in the local and regional market. Co-operative Bank, for instance, acquired Jamii Bora in a rescue deal and renamed it Kingdom Bank.

The former NIC Group and CBA Group merged to create NCBA Group #ticker:NCBA while KCB Group #ticker:KCB also bought National Bank of Kenya (NBK) in a rescue deal.

Other transactions include I&M Group’s #ticker:I&M recent acquisition of a 90 per cent stake in Uganda’s Orient Bank and KCB’s purchase of a 76 per cent equity in Rwanda’s Banque Populaire du Rwanda Plc (BPR).

The buyouts of the struggling Kenyan lenders have been supported by the Central Bank of Kenya (CBK) as a means of resolving their problems and increasing stability in the financial sector.

Moody’s, which rates Co-op Bank, KCB #ticker:KCB and Equity #ticker:EQTY at B2 at par with Kenya’s sovereign rating, says the banking sector remains stable and is on a rebound from the Covid-19 pandemic.