One has a rich history. The other, a humble one. But that is for those who value once-upon-a-time tales about KCB Holdings Group and Equity Group Holdings.
As at the end of December 2018, the financial performance of Kenya’s two largest financial institutions silently continued to write a story of might, ambition and business rivalry.
With mergers and acquisitions the in thing now, the next chapter of rivalry has just started. But unlike before, it is no longer a two-horse race.
NIC Bank and Commercial Bank of Africa want to make a statement through their merger deal and so is Co-operative Bank Group.
Mauritian lender SBM Bank came in, saw and sealed two deals, first acquiring Fidelity Bank then carving out assets from collapsed Chase Bank where it booked a Sh3.82 billion bargain gain.
KCB and Equity are not taking it lying down. KCB chief executive Joshua Oigara says he wants to use acquisitions to accelerate the group’s growth. It was founded outside the country, then came to Kenya and dominated. It now wants to deepen operations outside the country.
In 1896, KCB, started its operations in Zanzibar as a branch of the National Bank of India. In 1904, the lender extended its operations to Nairobi. But the rest is not just history but rather the making of a story of East Africa’s oldest and largest commercial bank.
By this time, Equity was nowhere in the picture. The thought of starting a purely indigenous bank was almost an unimaginable tale. Only in October 1984 did Equity Bank, then Equity Building Society, enter the scene.
The society’s logo, a modest house with a brown roof, may not have made sense then. But it’s from this humble beginning that small but steady gains were made to yield the present-day lender with the largest number of customers.
By 1984, the government of Kenya had already acquired majority shareholding in National Bank of India and changed the name to Kenya Commercial Bank (KCB).
Then in 1988, the government sold 20 percent of its shares at the Nairobi Securities Exchange (NSE) through an IPO that saw 120,000 new shareholders acquire the bank. That was a big step. But for Equity, its muscles had proved too weak, to the extent of being declared technically insolvent in 1993 due to an assets-liabilities mismatch.
One man stepped forward — James Mwangi. He took over as finance, operations and strategy director at Equity in 1994.
While, in 1997, KCB, known for its roaring lion emblem, resolved to spread its operations to various markets in the region, starting with Tanzania, Equity’s story was still more of folding up than remaining in the market.
Equity had to wait until 2008 — a whole 11 years — to try its luck beyond the borders. That was through acquiring Uganda Microfinance Ltd.
But fast-forward to May 2019, and Equity and KCB now are in a neck-and-neck competition to deepen control not only of the Kenyan market but the region too.
For the year ended December 2018, KCB grew its profits by 22 percent to Sh24 billion while Equity’s grew by 4.8 percent to Sh19.82 billion.
With Equity’s slowed pace of growth last year, KCB opened a 17.4 percent profit gap with its competitor. This was the largest gap in 12 years. Only in 2007 was the difference large at 30.2 percent in favour of KCB.
Between 2007 and 2018, Equity Group beat KCB on profitability five times — in 2008, 2009, 2011, 2012 and 2014.
For Mr Mwangi, Equity has been like his second home, having joined the organisation in 2004 and working with the founder Peter Munga to get it out of the ashes of insolvency.
Five years later, in 2011, Mr Oigara joined KCB as group chief finance officer. But in January 2013, he was appointed the group chief executive, bringing in impact at the end of the year by cutting short the back-to-back two-year reign in which Mr Mwangi had posted more profits than KCB.
However, this was not to last. Mr Mwangi was back again, posting a Sh17.2 billion profit against Oigara’s Sh16.8 billion in 2014. Since then, it has been four years of Mr Oigara in the lead.
But now the two want to deepen their competition through acquisitions. Currently, KCB has 258 physical branches, 946 ATMs and 16,642 agents. These are spread out in Kenya, Uganda, Rwanda, South Sudan, Burundi and Tanzania. It also has a representative office in Ethiopia.
On the other hand, Equity rides on 290 branches, 694 ATMs and 42,635 agent outlets, with a presence in Kenya, Uganda, South Sudan, Tanzania, Rwanda and DRC.
This means that despite KCB having embarked on regional expansion in 1997, Equity caught up with its rival and has also stamped its feet in the region since entering Uganda in 2008.
KCB is completing a deal to acquire part of Imperial Bank. In a quick follow-up, it has announced a deal to acquire a 100 percent stake in National Bank of Kenya.
“The proposed transaction will further consolidate the banking sector in Kenya and will create stronger institutions, enabling KCB to play a bigger role in the financial inclusion agenda,” said Mr Oigara about the deal. Hardly two weeks later, Mr Mwangi has announced a Sh10.6 billion plan to purchase banking businesses in Rwanda, Tanzania, Zambia and Mozambique, adding two new countries to its portfolio.
Eyes will now be on how the deals of these two top lenders as well as that of the outfit that will be born out of the NIC-CBA merger will shape regional markets.
Last year, Equity Group’s return on average equity was at 21.1 percent compared with KCB’s 21.9 percent. This means that while Equity earned its owners about 21 cents for every shilling they invested in 2017, KCB earned its shareholders 22 cents.
On the cost-to-income ratio (CTI), Mr Oigara also beats Mr Mwangi. While Equity’s CTI was 52.2 percent, KCB’s was at 48.3 percent. In other words, KCB was more efficient, using fewer resources to generate every shilling of revenue.
The two CEOs rarely share platforms. The KCB boss hardly makes any remarks about his competitor. However, sometimes, Mr Mwangi does.
“The market sees the value in us. Beating the largest bank in the country shows the faith the market is allocating to us,” Mr Mwangi was quoted saying at an annual general meeting.
At end of last year, KCB’s assets were valued at Sh714.3 billion, stamping its foot as the market leader in terms of assets. But Equity follows with Sh527.8 billion, 19.7 percent lower.
Back in 2007, the gap was too wide. While KCB had assets valued at Sh191.2 billion, Equity trailed with just Sh53.13 billion. The latest figures show that Equity has used the last decade to narrow the gap.
The fight to control deposits and command huge customer numbers has also intensified. In 2007, Equity had deposits of Sh31.5 billion and only 1.84 million customers to its name.
Equity now boasts Sh422.8 billion in deposits against KCB’s Sh537.5 billion. This puts the two lenders in pole position to control the lending market in the region.
But in the changing environment, both banks have been swift in investing in digital platforms. Ninety-six percent of Equity’s transactions now happen outside branches, compared with 88 percent of KCB’s.
The race to control the market continues to hot up. Mr Oigara remains keen on developments in Ethiopia and is ready to make a full entry should opportunity come knocking. But so is his competitor.
Both have had a rocky outing in South Sudan owing to political instability and hyperinflation. Sometimes they have been forced to shut down temporarily or close some branches and scale down staff. But they still hold on.
Mr Mwangi is keen on growing the returns from the subsidiaries and has included that in the eight-point model of surviving the changing banking landscape.
Last year, both banks were ranked among the top 1,000 in the world by The Banker magazine. Credit rating firm Moody’s Investors Service ranks both banks in the B2 category.
As the year progresses, eyes remain on both Mr Oigara and Mr Mwangi. While Mr Oigara earns about Sh4.75 million as basic monthly salary, his counterpart takes home Sh4.73 million.
They both wake up to author a silent story of business rivalry dotted with respect and ambition to control the region’s financial services landscape.