Mergers and acquisitions are a source of big and exciting news stories for business journalism. It did not surprise me that the news of the impending acquisition of the National Bank of Kenya by Acess Bank of Nigeria was a very big story.
This is how the CEO of the Kenya Commercial Bank (KCB), Paul Russo, put it as he announced the impending acquisition: "Since September, the board has been re-evaluating options for a sustainable resolution for the National Bank. We have cleaned the bank up for the last four years but we have been affected by an event that hit compliance on capital. We have to make a decision to protect capital and secure the effort we have put in in the last four years. I love NBK but I don’t believe in divided attention."
Then the clincher: ‘The board has accepted a binding offer from Access Bank. The clean-up exercise we have done in the last four years has given us the opportunity to price at 1.35 multiple of the book."
I must confess that I found my nationalistic instincts getting irritated by the prospect of selling one of our crown jewels to the Nigerians.
Historically, the establishment of NBK by our founding fathers was motivated by high nationalistic ambitions and visions.
Even as it was struggling, NBK retained positive strengths. It was the biggest collector of revenues for the Kenya Revenue Authority.
It remained a major banker to large parastatals, notably, the Teachers Service Commission (TSC), the National Health Insurance Fund (NHIF) and important regulatory institutions like Kenya Civil Aviation Authority, and the Kenya Bureau of Standards.
It maintained a privileged branch presence at all entry points into the country, including airports and ports.
Several past attempts to change the fortunes of the bank through expensively State-funded bailouts yielded zilch.
We all celebrated when the KCB bought the bank four years ago, believing that the acquisition was the best chance at revitalising the bank.
The experiment did not work. A recent multi-billion shilling court judgment against the bank was enough to throw the whole turnaround process off the rails, thrusting the lender into a territory whereby it could not meet a key regulatory ratio: namely, core capital to total risk - weighted assets.
If the shareholder did not move quickly with solutions, the bank was only going to sink deeper into problems. We must not forget that NBK has been a bottomless pit.
The government pumped in Sh4.5 billion in the bank following a run on it in 1998.
That money and part of deposits belonging to the National Social Security Fund (NSSF) was later converted into preference shares in 2003.
But the biggest bailout was to happen in 2006 when the government pumped in a whopping Sh20 billion in the form of Treasury bonds with varying maturity dates.
Which brings me back to the Nigerian banks.
What have these big Nigerian banks seen in this market?
I have tried to track the history and the strategies of these Nigerian banks to try to discern and understand what their advent into the Kenyan market could mean in terms of pace, direction and growth of our banking sector.
What is clear is that this is not just a play on acquiring new customer segments, new geography and new capabilities.
The Nigerian banks are talking about establishing ‘universal payments gateways’, of acquiring a dominant share of the continent’s international trade.
On Thursday, Access Bank said it was attracted by Kenya’s pivotal role in East Africa’s trade corridors and by the fact that the country has been picked to host the headquarters of Afreximbank’s Pan-African Paymentsand Settlement System (PAPSS).
Nigerian banks are positioning themselves to dominate Africa’s access and links to global financial gateways in India, Dubai and China.
I see a clear trend where competition in the banking sector will be in building payment gateways to the rest of the world.
Banking is evolving into a business of building trade platforms and ecosystems.
And, in this new world of platforms and open banking, our domestic giants risk being left behind because it seems to me that their eyes are stuck to the rear view mirror.
Fintechs will eat their lunch.
The writer is a former managing editor of The EastAfrican.
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