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Africa  

Kenyan banks slow down acquisitions and mergers

Source: Xinhua   2018-06-18 19:57:33

NAIROBI, June 18 (Xinhua) -- Commercial banks in Kenya have slowed down acquisitions and consolidation in 2018, having found ways to navigate the tough business environment brought about by the introduction of interest caps in September 2016.

Only one acquisition has been recorded so far, a departure from last year where the East African nation registered four, with more banks expressing interest in acquiring others.

The acquisitions included Diamond Trust Bank Kenya buying Habib Bank (K) Limited, Giro Commercial Bank was acquired by I&M Holdings while Oriental Commercial Bank was acquired by Bank M of Tanzania.

On the other hand, SBM Holdings of Mauritius expressed interest in acquiring Fidelity Commercial Bank while Kenya Commercial Bank floated the idea of buying National Bank of Kenya through a share swap.

"Consolidation in the banking sector picked up at the start of 2017, but slowed as the year progressed. In 2018, only one acquisition deal took place during the quarter," said Cytonn, a Nairobi-based investment bank, in a note on Monday.

In the acquisition, SBM Bank Kenya Ltd has completed the acquisition of some assets and liabilities of Chase Bank Limited, which was placed under receivership.

The agreement between the Central Bank of Kenya (CBK), Kenya Deposit Insurance Corporation and SBM Bank Kenya, has seen the former acquire 75 percent of the value of all moratorium deposits at Chase Bank.

"It is a major milestone as this is the first successful instance in the history of Kenya of a bank being successfully brought out of receivership. Chase Bank was put under receivership of the CBK in 2016, with customer deposits in excess of 1 million U.S. dollars," said Cytonn.

Following the introduction of the interest caps, many smaller banks were expected to merge or either be acquired by bigger ones in bid to stay afloat.

But it has baffled analysts that the banks have remained afloat, with many which were expected to merge or be acquired retaining their independence.

"We are surprised that some of the smaller banks have managed to stay independent this long, as we would have expected weaker banks that don't serve a niche, don't have a clear deposit gathering strategy and have low capital positions, being forced to merge or be acquired as they succumb to sustained effects of the interest rate cap and the implementation of IFRS 9, which affects their profitability and capital levels," said Cytonn.

Going forward, however, Cytonn noted that despite the lull it still expects more consolidation in the industry.

Henry Wandera, an economics lecturer in Nairobi, noted that acquisitions have declined because banks have navigated through the interest caps, with a majority making profits and growing loan books.

Some of the banks that have posted profit in the first quarter are Stanbic Bank, Equity Bank, Kenya Commercial Bank and Cooperative Bank.

The growth was mainly driven by an increase in the loan book and net interest income. Average loan growth stood at 4.3 percent for the banks.

"It is apparent that Kenyan banks have adjusted to the new operating environment following the introduction of interest rate caps. They would not be making profit if they were stifled by the law," said Wandera.

Besides the caps, there has been more pressure for the banks to implement the International Financial Reporting Standard (IFRS) 9.

The banks were expected to cut lending to unsecured entities and review their business models as they implemented the standard, which so far only the big banks have complied.

"The bouncing back of banks to overcome interest caps indicates that the sector is resilient. The banks will also overcome the IFRS rules, whose effects on the industry we cannot tell yet because only a few have implemented," said Wandera, adding that the institutions were also able to overcome onslaught from mobile money.

Editor: mmm
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Xinhuanet

Kenyan banks slow down acquisitions and mergers

Source: Xinhua 2018-06-18 19:57:33

NAIROBI, June 18 (Xinhua) -- Commercial banks in Kenya have slowed down acquisitions and consolidation in 2018, having found ways to navigate the tough business environment brought about by the introduction of interest caps in September 2016.

Only one acquisition has been recorded so far, a departure from last year where the East African nation registered four, with more banks expressing interest in acquiring others.

The acquisitions included Diamond Trust Bank Kenya buying Habib Bank (K) Limited, Giro Commercial Bank was acquired by I&M Holdings while Oriental Commercial Bank was acquired by Bank M of Tanzania.

On the other hand, SBM Holdings of Mauritius expressed interest in acquiring Fidelity Commercial Bank while Kenya Commercial Bank floated the idea of buying National Bank of Kenya through a share swap.

"Consolidation in the banking sector picked up at the start of 2017, but slowed as the year progressed. In 2018, only one acquisition deal took place during the quarter," said Cytonn, a Nairobi-based investment bank, in a note on Monday.

In the acquisition, SBM Bank Kenya Ltd has completed the acquisition of some assets and liabilities of Chase Bank Limited, which was placed under receivership.

The agreement between the Central Bank of Kenya (CBK), Kenya Deposit Insurance Corporation and SBM Bank Kenya, has seen the former acquire 75 percent of the value of all moratorium deposits at Chase Bank.

"It is a major milestone as this is the first successful instance in the history of Kenya of a bank being successfully brought out of receivership. Chase Bank was put under receivership of the CBK in 2016, with customer deposits in excess of 1 million U.S. dollars," said Cytonn.

Following the introduction of the interest caps, many smaller banks were expected to merge or either be acquired by bigger ones in bid to stay afloat.

But it has baffled analysts that the banks have remained afloat, with many which were expected to merge or be acquired retaining their independence.

"We are surprised that some of the smaller banks have managed to stay independent this long, as we would have expected weaker banks that don't serve a niche, don't have a clear deposit gathering strategy and have low capital positions, being forced to merge or be acquired as they succumb to sustained effects of the interest rate cap and the implementation of IFRS 9, which affects their profitability and capital levels," said Cytonn.

Going forward, however, Cytonn noted that despite the lull it still expects more consolidation in the industry.

Henry Wandera, an economics lecturer in Nairobi, noted that acquisitions have declined because banks have navigated through the interest caps, with a majority making profits and growing loan books.

Some of the banks that have posted profit in the first quarter are Stanbic Bank, Equity Bank, Kenya Commercial Bank and Cooperative Bank.

The growth was mainly driven by an increase in the loan book and net interest income. Average loan growth stood at 4.3 percent for the banks.

"It is apparent that Kenyan banks have adjusted to the new operating environment following the introduction of interest rate caps. They would not be making profit if they were stifled by the law," said Wandera.

Besides the caps, there has been more pressure for the banks to implement the International Financial Reporting Standard (IFRS) 9.

The banks were expected to cut lending to unsecured entities and review their business models as they implemented the standard, which so far only the big banks have complied.

"The bouncing back of banks to overcome interest caps indicates that the sector is resilient. The banks will also overcome the IFRS rules, whose effects on the industry we cannot tell yet because only a few have implemented," said Wandera, adding that the institutions were also able to overcome onslaught from mobile money.

[Editor: huaxia]
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