Commercial Bank of Africa (CBA) is on course to merge with NIC Group after the majority of its shareholders approved the share swap deal that was proposed in January.
CBA directors said yesterday that as at end of last Monday, 29 out of 34 shareholders with 98.15 per cent stake of the issued and fully paid up share capital had accepted the deal.
“As a result of the share exchange transaction, it is proposed that NIC Group will acquire sole control of CBA and its subsidiaries,” CBA said in a statement published in the daily newspapers.
The merger, expected to be executed through a share swap, is the first major merger deal in a sector that has continued to witness consolidation in the recent past.
Successful conclusion of the merger could see the combined bank become the third biggest in Kenya by total assets, and the second biggest bank in Kenya by customer deposits, according to South Africa rating agency, Global Credit Ratings (GCR).
CBA owners will exchange their shares for 53 per cent of the new shares in NIC, which will be the non-operating holding company for the merged entity and remain listed on the Nairobi Securities Exchange.
“This may ultimately result in lower funding costs for the combined bank through improved ability to mobilise deposits. It may also increase the lending capacity of the bank to the private sector and government’s focus areas,” said GCR.
The two lenders will complete the deal upon fulfilment of certain regulatory approvals from the Central Bank of Kenya and Capital Markets Authority. They expect this to conclude by the end of June.
GCR recently cautioned that despite long-term benefits expected from the merger, operational and technical risks of combining two banking systems, funding structures and cultures may slow earnings for several years.
“We also anticipate the long-term integration costs to be material, causing a drag on earnings for a two- to three-year period, limiting the positive effect of the merger,” said GRC in separate ratings on the two entities.
CBA group’s nine-month profits to September 2018 fell 16 per cent to Sh3.36 billion while that of NIC group also dropped by 3.2 per cent to Sh3.3 billion over the same period.
The two are yet to release full-year results