Monday, May 10, 2010

Mating season sets in for banks eyeing growth

The proposed system is also set to reduce the time and costs involved when banks and customers try to resolve the disputes through courts.  Photos/FILE

The proposed system is also set to reduce the time and costs involved when banks and customers try to resolve the disputes through courts. Photos/FILE  NATION MEDIA GROUP

By WACHIRA KANG’ARU

A resilient economy coupled with growing competition intensified by the entry of multinationals is set to touch off a wave of mergers and takeovers in banking. An analysis by Central Bank of Kenya shows that strategic alliances and mergers will anchor the drive by banks to expand their regional presence.

“Locally, competition is expected to intensify as banks downstream and well established pan-African and international banking brands establish their presence in Kenya,” Central Bank says in its Bank Supervision Annual Report for 2009. “These market dynamics could see a move towards mergers and strategic alliances.”

Currently, Kenya has 44 commercial banks, one stand-alone mortgage finance company, one deposit taking microfinance institution and 129 foreign exchange bureaus. Among foreign banks that have launched a strong assault on Kenya with eyes on the regional prize are Ecobank, United Bank of Africa and Commercial Bank of Africa. Standard Bank of South Africa, operating locally as Stanbic Bank, two years ago took over CfC Bank in a move seen to target the local financial institution spread in Kenya.

Looking for critical mass

Given the high costs of setting up branches, analysts say these pan-African are more likely to pounce on smaller rivals in Kenya with a wider reach. Equity Bank has already stated its intention to increase its stake in Housing Finance, the country’s biggest mortgage company, as it seeks to enter the home loans business.

It is also said to be eyeing a big stake in National Bank of Kenya as it moves to become one of the biggest bank in the East Africa region. Equity is already operating in Southern Sudan and Uganda, where it entered by buying out Uganda Microfinance Ltd. And in a reverse takeover, Jamii Bora, a micro-finance institution, acquired City Finance bank to form Jamii Bora Bank Ltd. Jamii Bora is non-governmental organisation that specialises in providing loans for micro-businesses, school fees, health, and housing.

Before this, Equatorial Bank announced a merger with Southern Credit Bank, as they consolidated their operations to meet new capital rules and build a strong financial muscle and critical mass for expansion. Early this year, KCB concluded merging of its mortgage subsidiary, Savings and Loans (S&L), into its main operations to cut cost and increase business by utilising its wide branch network to carry out mortgage business.

Standard Chartered Bank recently entered into an agreement to acquire the Barclays Bank’s African custody business. The buyout gives Stanchart a foothold in eight African markets – Botswana, Ghana, Kenya, Mauritius, Tanzania, Uganda, Zambia and Zimbabwe – and indirectly to another eight including Egypt, Cote d’Ivoire, Malawi, Morocco, Namibia, Nigeria, Tunisia and South Africa.

The purchase saw the Kenyan subsidiary acquire the custodial business held by Barclays Bank of Kenya. “Accordingly, banks are expected to source for additional capital to tap regional opportunities,” says Prof Njuguna Ndung’u. Last week KCB shareholders approved the bank’s proposal to raise an additional Sh15 billion through a rights issue to fund regional growth. The banks operates in Southern Sudan and East Africa Community member countries except Burundi.

Appetitive for growth

Standard Chartered Bank of Kenya has proposed to increase its share capital by issuing 27 million new shares to shareholders through a rights issue as well. Although the details have not yet been made public, the bank could raise as much as Sh5.5 billion by selling the new shares. By close of trading on Friday, the bank’s shares were retailing at Sh204 per share.

NIC Bank has issued bonus shares at the ratio of one for every 10 currently held capitalising over Sh1.2 billion which becomes available for use in business expansion. Last year, NIC acquired a 51 per cent equity stake in Savings & Finance Commercial Bank, which has operations in Dar es Salaam, Mwanza and Arusha.

“The Tanzanian market offers good growth potential for the group and will facilitate improved service delivery to our customers who are already operating regionally,” says NIC Managing Director James Macharia. Overall in 2009, says the CBK report, banks increased their asset base by 14 per cent to Sh1.35 trillion on account of increased loans and advances. The sector also registered an increase in pre-tax profit of 13 percent to Sh48.9 billion in 2009.

“The resilient performance is largely attributable to the enabling legal and regulatory environment put in place by the Central Bank and the government and robust risk management frameworks adopted by banks,” Prof Ndung’u says. By February 2010 deposits had crossed the one-trillion-shilling mark to Sh1.1 billion with CBK attributing this to branch expansions and aggressive marketing for fresh deposits by banks, receipts from exports and remittances from abroad.

wkangaru@nation.co.ke

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