Lean times heighten banks’ mergers and acquisitions

Six local banks have been acquired in the past four years in what is shaping up as a future with fewer stable banks.

Three of the acquisitions have taken place in the past six months.

Fidelity Bank was acquired last month by Mauritius firm SBM Holdings while Oriental Commercial Bank was acquired by Tanzania’s M Holdings. Giro Commercial Bank was, on the other hand, bought by I&M Bank in June. Mwalimu Sacco acquired Equatorial Commercial Bank last year while Centum acquired K-Rep Bank in July 2014 and GT Bank bought Fina Bank in November 2013.

The Central Bank of Kenya (CBK) wants to put up Chase Bank for sale in the first quarter of next year after concluding due diligence of the bank that is currently in receivership.

“Kenya’s over-banked environment has already begun leading to consolidation in the sector and heightened mergers and acquisition activity with an average price to book value of two times and average acquisition stake of 77 per cent,” Cytonn said in a quarterly banking sector report released Monday.

Currently, Kenya has 42 banks serving 44 million people in a $63 billion (Sh6.5 trillion) economy and just a year ago had 44 banks until Imperial Bank and Dubai Bank went bust.

This compared with the $481 billion (Sh49.4 trillion) Nigerian economy that is only served by 22 banks for a population of 180 million.

The crisis in the banking sector following the collapse of the three banks as well as introduction of the interest rates cap is likely to force more banks to consolidate to remain afloat.

“Consolidation will only gather pace going forward with weaker banks forced to merge or be acquired. The likely candidates for mergers will be banks with significantly similar shareholders,” said Cytonn in the report.

The investment firm says key issues such as increased loan loss provisioning and the regulated loan and deposit pricing framework, will transition the industry into an environment where only the innovative banks with diversified revenue streams will survive.

The remaining banks will be forced to either merger or be acquired. With a moratorium prohibiting licensing of new banks, entry by international investors into the sector has been limited to buyouts with Cytonn saying there will be continued interest from foreign suitors.

Two Banks - Dubai Islamic Bank and Mayfair Bank - have had their greenfield entry stalled even after receiving provisional licensing due to the moratorium. With GDP growth prospects for 2016 at 6.0 per cent, Kenya’s listed banks recorded improved earning per share growth of 15.1 per cent in quarter three of this year.