National Bank of Kenya (NBK) #ticker:NBK is likely to collapse if the proposed takeover by KCB #ticker:KCB does not succeed, the Treasury has warned.
Treasury Secretary Henry Rotich told Parliament on Thursday that the merger presents an opportunity to avert risk of failure by NBK and prevent a potential banking sector crisis.
“Currently, NBK is having challenges in meeting its capital requirement that has had an effect in its core business…If this issue is not addressed over time, it may lead to negative ramifications in the entire banking sector in the country,” he said.
He warned that the Central Bank of Kenya (CBK) has been watching the regulatory ratios and management issues at NBK.
“The CBK has been reminding us as the Treasury that the bank has not been meeting its capital requirements. As a bank that government has been keen to reform, we have welcomed the process of KCB to take over because it addresses CBK’s concern that the bank needs to meet its regulatory ratios or go the same fate that other banks have gone…We have engaging the CBK to ensure the merger process is completed. If not, we have no option but for the CBK to take action against the bank as it has done with lenders that went under,” Mr Rotich added.
Mr Rotich was appearing before MPs to shed light on the proposed merger following KCB’s announcement on April 18 of its intent to acquire NBK pursuant to regulation 4(1) of the Capital Markets (Take-over and Mergers) Regulations 2002.
“We have no problem with the KCB proposal. Once we get details of NBK’s valuation and how the takeover will play out, the government will make a decision on this merger,” Mr Rotich told the National Assembly’s Finance and Planning Committee.
KCB Group, Kenya’s biggest lender by assets, seeks acquire the bank through a share swap in a deal that would involve 10 ordinary shares of NBK for every one ordinary share of KCB.
KCB — which also operates in Uganda, Tanzania, Rwanda, Burundi and South Sudan — expects the takeover deal to close by October this year, subject to approval from shareholders of the two banks as well as market regulators. KCB proposes to maintain NBK as a standalone subsidiary of the Group for a period of two years post-acquisition and thereafter fully integrate NBK into KCB.