The Central Bank of Kenya’s top policy organ, in its recent meeting, noted that there is headroom for even consolidations going forward.
“We are not done yet and there is all indication of more market-driven consolidations in the banking sector. While the tree is not there, we are already seeing the green shoots and will allow this plant to grow naturally,” said CBK Governor Patrick Njoroge. He made these remarks during this month’s Monetary Policy Committee media briefing.
Governor Njoroge said that Kenya’s banking sector is stable in terms of liquidity and capital adequacy levels and that the monetary authority has not major concerns.
“There are, however, issues to do with high liquidity in the banking sector which means that banks must move more towards lending. Credit risk also remains elevated with non-performing loans on the rise, to 6.3 per cent to up to the 12 months ending August this year,” said the Governor.
The Governor said the CBK has put in place several measures to improve how banks operate including having full disclosures with customers and use of risk-based pricing models as well as the publication of banking sector service charters.
But even with this optimism from CBK, experts have a diverse opinion over what is driving consolidations within Kenya’s banking business.
“The banking industry is in severe financial crisis with many of these institutions not able to break even as a result of the interest rate capping law and a harsh business environment. This is why many of those affected have no option but to merge and possibly rebrand in order to solidify their financial base,” said Dr Samwel Nyandemo, an economist at the University of Nairobi.
There is a feeling that smaller commercial banks have no choice but to be acquired, merge or form strategic partnerships with much bigger players.
“The consolidation activity is up in the banking sector due to a changing business environment that includes interest rates cap law and tighter sector regulations. There is, therefore, need to have stronger and more competitive banks with huge balance sheets that can be deployed to finance big-ticket projects,” said Gerald Muriuki, an analyst at Genghis Capital.
The market is also keenly watching on the ongoing merger between the Commercial Bank of Africa (CBA) and NIC Group. Another major deal is the buyout of National Bank by KCB Group which is in the final stages of completion.
