Kenya’s banking sector is likely to see a continuation of the recent trend of takeovers by large lenders of their small-tier peers on account of the widening gulf in profitability and asset base, global ratings agency Moody’s has said.
The agency, in a report on the Kenyan banking sector released on Tuesday, said that larger lenders have been able to leverage their vastly bigger reach in the market—both physical and digital— to grow deposits.
This allows them to edge out smaller lenders in loan pricing due to economies of scale, which has helped them corner three-quarters of the sector's asset base.
Kenya is home to 39 commercial banks, out of which nine are classified as large or tier one, eight as tier two or medium-sized banks and 22 as tier three or small lenders.
“Kenya's largest banks can attract ample customer deposits thanks to nationwide branch networks, high mobile banking penetration and large customer bases,” said Moody’s.
“The nine largest banks account for around 75 percent of assets and 87 percent of the sector's profitability. The weak profitability of many smaller banks will encourage mergers and acquisitions in the years ahead, either with larger domestic banks or with foreign banking groups that want to enter the Kenyan market.”
In the last few years, the sector has seen a move towards consolidation, where smaller lenders that have sometimes struggled to meet capital adequacy ratios have been taken over by larger peers and foreign lenders seeking a foothold in the local market.
Equity Group is the latest tier-one bank to buy a struggling lender after taking over Spire Bank from Mwalimu Sacco last month.
KCB also recently acquired the National Bank of Kenya (NBK) while Co-operative Bank of Kenya bought struggling Jamii Bora Bank, rebranding it as Kingdom Bank.
Nigerian lender Access bank, in 2020, took over Transnational Bank, which was linked with persons who were close to the late President Daniel Arap Moi.
Access is also eyeing another local acquisition following the collapse of a mooted deal to buy Sidian bank from investment company Centum.
The recent deals have highlighted the preference of the Central Bank of Kenya (CBK) to let big banks acquire smaller and struggling ones instead of letting them collapse.