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Local banks predicted to resist mergers

by Alex
June 1, 2016
in Banking, Kenya
0
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The Kenyan banking industry is not ready to willingly consolidate as most lenders are seeking to protect their niche markets.

A report by Ecobank Research indicates that asset strategies are too heterogeneous making it too costly for banks to easily crisscross segments. The analysts argue that the capital requirements in the country is still low and there is no political goodwill for such consolidation.

The comment comes amidst widely held belief that Kenya is overbanked and the market is ripe for mergers and acquisitions.

Recently I&M, a mid-sized bank, announced plans to acquire small lender Giro Bank while KCB is currently conducting due diligence on Chase Bank.

Central Bank of Kenya governor Patrick Njoroge last year opposed plans to increase core capital requirement in the banking sector arguing the small lenders had a role to play in the economy.

Small banks largely serve corporate entities and high-net worth individuals looking for personalised services. The small lenders also take a risk with small and medium-sized enterprises lending to them albeit at high prices.

Ecobank Researchers cite the decision by Parliament to shoot down the Treasury’s proposal to increase core capital as exemplifying the lack of political goodwill for consolidation.

A proposal to merge three government owned banks — National Bank, Development Bank and Consolidated Bank — has not taken off since being floated two years ago.

Consolidated Bank has been operating below statutory capital requirements for the last two years with the government failing to honour pledges to pump additional cash into the bank. Low capital levels have seen the lender slip back into loss territory.

Six large banks control more than 50 per cent of the banking sector’s liquidity leading to concerns that the small lenders are being pushed out. Recent collapse of Dubai Bank, Imperial and Chase Bank has worsened the situation for the small lenders with depositors said to be seeking safety in large banks.

Ecobank Research acknowledges the skewed liquidity distribution in the market is not sustainable citing it as the only risk it continuously tracks in the industry. The analysts further add that the recent turmoil in the sector is not enough to trigger a market-driven consolidation due to the fact that the medium and small players are too defensive — as shown in their asset pricings

Kenya with a total population of 44 million has 43 banks compared to Nigeria which has 25 banks for its 125 million citizens and South Africa with about 35 banks for 53 million people.

Tags: Central BankChase BankCommercial BankDubai BankEcobank ResearchFeaturedImperial BankKCBliquiditymergers

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Alex

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