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Moody’s forecasts bank mergers in tight space

SBM bank
A worker paints the logo of SBM bank, which acquired Chase Bank in 2017. FILE PHOTO | NMG 

Kenya’s banking sector is likely to see more mergers and acquisitions in the next two years as capital raising options diminish for smaller struggling lenders, global ratings agency Moody’s says in a new report.

The African banking sector report singles out Kenya and Tanzania as markets where mergers and acquisition should be prevalent, given their fragmented banking sectors that boast a few large banks and many smaller ones.

In Kenya and Tanzania, the top five banks account for 46 per cent and 55 per cent of the sector assets respectively.

Regulatory changes, such as the interest rate cap in Kenya and stricter capital requirements, are also putting smaller lenders under pressure and inviting takeovers by large peers.

“We expect mergers and acquisitions among banks in Sub-Saharan Africa to continue over the next two years, especially in granular banking systems where there is a clear tiering between a few large banks and a large group of smaller banks, for example in Tanzania and Kenya,” said Moody’s.

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“Rights issues (as an option for raising capital) have become less commonplace in recent years following the slump in bank share prices and capital is becoming scarce, especially for lower tier banks.”

In Kenya, a number of smaller banks have been taken over by larger rivals in recent years.

KCB Group #ticker:KCB is in the process of taking over National Bank of Kenya (NBK) #ticker:NBK in a deal that is seen as essential in saving State-owned NBK from collapse over its weak books.

KCB is the largest lender by assets in the region, with a healthy balance sheet that allows it to finance the takeover without raising additional capital. The lender is also taking over part of the assets of collapsed Imperial Bank.

Other banking takeovers in Kenya include DTB’s #ticker:DTK acquisition of Habib Bank in 2017, I&M Bank’s #ticker:I&M buyout of Giro, which was concluded in the same year and Mauritian lender SBM’s takeover of Fidelity Bank and Chase Bank.

Commercial Bank of Africa and NIC Bank #ticker:NIC are also in the process of concluding a merger, which is expected to create the country’s third largest bank by assets.

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