The NIC Group Plc and Commercial Bank of Africa yesterday announced that their directors had commenced discussions regarding potential merger of the two banks. Once the merger is finalized, though it has to be approved by shareholders and regulatory authorities, the deal will create the third largest bank in Kenya by asset size.
The merger will bring under one roof assets worth Ksh. 444.3 Billion, deposits worth 336 Billion and profits worth Ksh. 6.5 Billion. According to the boards of the two banks, this merger will enhance capacity through capital consolidation and strong liquidity which will enable them to capture strategic growth opportunities. Thus, allowing them to invest in future growth and new services to their customers.
The implementation of the populist lending cap back in 2016 had an effect of dwindling the super normal profits enjoyed by banks. Since then, the banking sector has been in turmoil as the banks are no longer able to depend on interest income from loans. Banks have had to become creative in regard to generating income with some turning to mobile loans which have become a favorite source of funds for Kenyans. This is because money is lent out without security and the many procedures associated with getting a loan from a bank. Banks have also invested heavily in government securities and given our government huge appetite for debt, this bet has paid off handsomely.
When the rate cap law was passed, experts predicted that moving forward, banks would have to merge in order to be able to navigate the turbulent water of the sector. This could explain why Kenya Commercial Bank was keen on acquiring National Bank of Kenya at some point. My take is that we are bound to see more mergers and acquisitions in the banking sector in the future as various entities try to secure their future.