Fitch says mergers to deal with small problem banks

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Fitch says the small banks are opaque and pose systemic risks that can only be dissipated if they are bought off.
Fitch says the Kenyan banking sector has experienced several years of persistently low loan growth, which has constrained economic growth.
However, credit growth in the private sector recovered to seven per cent as of September 2019 from 2.5 per cent in 2018.

Mergers and acquisitions will help Kenya deal with problem banks posing a risk to the sector, rating firm Fitch has said.

The collapse of Chase Bank, Imperial Bank and Dubai Bank caused a crisis in the banking sector by spreading contagion and deposit flight, forcing the apex bank to intervene by offering liquidity support.

Although no lender has since gone under, several small banks are operating on thin capital and at different times breached Central Bank of Kenya (CBK) ratios but continue surviving.

Fitch says the small banks are opaque and pose systemic risks that can only be dissipated if they are bought off.

“A number of smaller banks are opaque and as a group pose some systemic risk, but ongoing consolidation in the sector will ease some of those risks,” Fitch said in the December 10 ratings action.

The State Bank of Mauritius bought Fidelity Bank.

This year, Nigeria’s largest retail lender, Access Bank Plc, acquired Kenya’s Transnational Bank associated with retired President Daniel Moi whose profits have been on a decline from Sh168 million in 2015 to a loss of Sh71 million last year.

Loss-making Mayfair Bank linked to politician Peter Kenneth is being sold to a leading Egyptian Bank, the Commercial International Bank, just two and a half years since it started operations.

Loss-making Spire Bank is looking for a strategic investor as is Jamii Bora Bank and Consolidated Bank.

Fitch says the Kenyan banking sector has experienced several years of persistently low loan growth, which has constrained economic growth.

However, credit growth in the private sector recovered to seven per cent as of September 2019 from 2.5 per cent in 2018.

Credit growth is stronger among Kenya's biggest banks, which are adequately capitalised, well-funded, and profitable.

The sector's asset quality has worsened, with the ratio of non-performing loans (NPL) to total loans reaching 12.9 per cent as of April 2019, according to the Central Bank.

The NPL ratio has since fallen slightly and will be further helped by increasing credit growth following the repeal of the interest rate cap, which had led to credit rationing.