Kenya Commercial Bank (KCB) has confirmed interest in acquiring at least 70 per cent stake of National Bank of Kenya (NSE: NBK) through a share swap. The deal however is yet to be formally lodged with Capital Markets Authority (CMA).
According to Genghis Capital, going by share prices of the two stocks as at 9th June 2017, KCB would issue about 38Mn to purchase the 70% stake in NBK owned by National Social Security Fund (NSSF) and The National Treasury. This would result in minimal dilution to KCB shareholders with the shareholding of NSSF and National Treasury in KCB jointly rising by about 100 Bps from the current 23.6%. Following this, the plan is for KCB to fully acquire NBK at a later stage.
KCB and NBK jointly account for about 60% of Government deposits which collectively account for less than 10% of total banking industry deposits.
Genghis analysts said the deal remains an ambitious undertaking given the current poor health of bank loan books across the industry (KCB’s Non-Performing Loan Ratio was at 8% as at 1Q17) and limited room for lending evidenced by competition in the sector for the small pockets of opportunity. Overall, Genghis argues that key risk remains exposure of KCB to significant corporate governance issues that NBK has had over the years.
Government has consistently bailed out NBK over the last decade without much success and KCB would essentially inherit the headache despite National Treasury being tasked with funding the restructuring process at NBK.
“In our view, the business advantage of KCB acquiring NBK remains minimal with risk of the Government in future using KCB to save its other struggling banks. This would result in erosion of shareholder value for KCB with no real benefit. We believe consolidating the Government banks into one as originally intended would have been a better strategy for Government.” read a note from Genghis Capital Research.
Related; Dubai Islamic Bank Begins Operations in Kenya with Three Branches
