CBA/NIC merger could tilt the balance of power among the country’s big banks and increase competition for deposits and government business.
If successful, the merger between the two mid-tier banks would create the country’s third-largest bank by assets at Ksh444 billion ($4.44 billion) with a customer base of 38 million.
The proposed bank is expected to have a strong digital proposition and a robust corporate and asset finance offering.
A bout a fortnight ago, Kenya’s banking industry woke up to merger talks between NIC Bank and Commercial Bank of Africa (CBA), a move that could tilt the balance of power among the country’s big banks and increase competition for deposits and government business.
Whether the new bank will be listed on the Nairobi Securities Exchange — since the proposed merger is between listed NIC Bank and non-listed CBA — depends on consent between the two lenders.
“That is a decision to be made by the two entities. They have just started discussions and we have not heard from them yet. There are a lot of procedures, consultations and processes to be followed. But it is our desire that they be listed,” said NSE chief executive Geoffrey Odundo.
If successful, the merger between the two mid-tier banks would create the country’s third-largest bank by assets at Ksh444 billion ($4.44 billion) with a customer base of 38 million.
The new bank would be in a pole position to wrestle the likes of KCB, Equity and Co-op Bank in the scramble for government deposits and securities.
Co-op Bank would move from third to fourth position in terms of asset base.
The proposed merger is still subject to shareholder and regulatory approvals.
Disruption
The EastAfrican has learnt that talks on the proposed merger between the two competing lenders have been going on in the background since 2015, with the boards of the two banks evaluating the viability of the move.
Market analysts say the proposed merger would disrupt the banking industry.
“We expect to see a shift in the banking industry as a result of this merger. Ultimately, this will drive innovation in the sector, and we expect other banks to review their business models to survive, particularly in an environment of controlled interest rates,” said Daniel Kuyoh, an analyst at Alpha Africa Asset Managers. NIC and CBA currently focus on asset finance and serving corporate, high net-worth and retail customers. CBA’s strength is in corporate and high net-worth clients and retail business through its M-Shwari platform, while NIC is strong in asset financing and the retail business.
“We expect the new bank to come up with a business model that takes into consideration the differentiated product offerings of the two banks,” said Mr Kuyoh.
More banks are leveraging technology to grow deposits, improve customer relations, issue advances and loans as well as transfer funds using mobile platforms and the Internet.
The growth in the use of smartphone technology has created a new distribution channel that has left banks searching for mobile strategies to make online banking available on small devices.
“It is the view of the two boards that a potential merger would bring together the best in class retail and corporate banks with strong potential for growth in all aspects of banking and wealth management,” the banks said in a joint statement. The proposed bank is expected to have a strong digital proposition and a robust corporate and asset finance offering.
“Such a group will be better placed to seize emerging opportunities in Kenya and the region,” said the statement.
Retail banks are embracing new technology by shifting transactions from the branch to online or mobile channels to save costs.
According to consultancy firm Deloitte, retail and commercial banking should continue to grow at a healthy pace.
According to Deloitte’s Banking Outlook Report (2018), banks should capitalise on the shift to a mobile-centric world by reorienting targeting strategies, product portfolios, and delivery models.
NIC bank currently has regional operations in Uganda and Tanzania, while CBA entered the Rwandan market through the acquisition of the Rwandese subsidiary of Uganda’s Crane Bank earlier this year.
CBA is also planning to expand to other markets such as Mozambique, DRC and Ethiopia through an online presence.
It is argued that Kenya’s banking landscape is headed for increased mergers and acquisitions after the National Treasury and Central Bank said the industry needed fewer, stronger banks to ensure financial stability.
Currently Kenya has about 42 banks including those under liquidation and receivership.
However, 20 small banks control just 8.7 per cent of the banking business, eight big banks control 65 per cent of the banking business, and 11 medium-sized banks have a 25 per cent market share.
