Bank consolidation set to peak in post-Covid period
Kenya’s banking sector is expected to witness increased mergers and acquisition activities, with trends strongly pointing to a busy year for local lenders.
Larger banks with sufficient capital base such as KCB Group, Equity Group and Co-operative Bank will likely take advantage of the current opportunities offered by the Coronavirus to expand to regional markets, in what has been the drift since the pandemic hit two years ago.
Industry experts believe such banks will utilise their financial muscle to buy out smaller and weaker banks that have struggled to regain their competitive stability owing to the effects of Covid-19 pandemic.
“It is a trend that will carry on this year and even after the pandemic is past us. You’ve seen the likes of Equity Bank really making major strides in the regional banking space, commented Peter Macharia, a banking expert.
Others, he added, will also follow suit, intensifying competition amongst the big three local banks. The stability of smaller banks and other micro financial institutions (MFIs) are still reeling from a sharp increase in non-performing loans in the last two years, which was already persistent even before the pandemic outbreak.
Kenyan borrowers across sectors and scales of business were affected, as declines in income and revenue meant that they were unable to meet their obligations. As a result, according to projections by Cytonn investments, consolidation will remain a key theme going forward as larger banks look to absorb the distressed customers from struggling lenders in buyout deals.
That advantage would not only offer lifeline to such lenders but will also offer the buying banks the fiscal edge in penetrating their target regional markets.
“Consolidation will be critical for the smaller banks that are still struggling during the recovery period, and it will also benefit larger banks by providing them with the opportunity to expand their operations locally and regionally and drive future growth,” Cytonn investments noted in its weekly report on the sector.
“Furthermore, we believe Kenyan banks will continue to diversify into other African countries in order to reduce their reliance on the local market and distribute risks as well.”
In 2020, for instance, Equity Group announced the completion of its acquisition of 66.53 per cent stake in the Banque Commerciale Du Congo (BCDC) at a cost of $95 million – in a deal that saw the bank obtain two subsidiaries in the Democratic Republic of Congo having earlier acquired ProCredit, a German bank, now Equity Bank Congo.
Last year the lender announced a $100 million ( Sh11.5 billion) capital injection in its newly acquired entity to enhance its capacity to fund development projects and large mining and manufacturing companies in DRC which joined the EAC bloc as its 7th member in March.
The amount was an addition to the Sh500 billion Equity committed to giving out to small businesses in the region for the next five years. DRC is a market that continues to entice Kenyan lenders due to its flexibility in handling African brands keen to invest in that country.
KCB is also eyeing the market after ending its pursuit of BancABC Tanzania, which is owned by Atlas Mara. The parties called off the Tanzanian deal after facing unspecified regulatory hurdles.