Nairobi — Even before the National Bank of Kenya is officially put on sale, a fierce behind the scenes battle for the oldest state-owned bank in Kenya is simmering. Some of the major players are angling for the vantage point to clinch what promises to be the most significant acquisition in the banking sector in recent years.

The battle to acquire the tenth largest bank in Kenya, in terms of assets, promises to be the most keenly fought privatisation venture. Already, the undercurrents have caused a spat between the Privatisation Commission - the ultimate authority on sale of government assets - and one of the local banks keen on acquiring the National Bank, Equity Bank.Causing confusion

The Nation has learnt that the commission has written a letter to Equity Bank- accusing its chief executive, Mr James Mwangi, of making public statements which, the commission says, have given the impression that Equity Bank had already bagged the deal.

A letter signed by the commission's executive director, Mr Solomon Kitungu, laments that as a consequence of the confusion created by Equity Bank CEO, several suitors and potential buyers had approached the commission wanting to know whether private arrangements with Equity on the sale of the National Bank had been entered into.

"You injure the privatisation programme when you indicate that you will buy the bank without due recognition of a bidding process or competition as required under the law," said Mr Kitungu. The letter was copied to the Nairobi Stock Exchange, the Kenya Bankers Association, the Central Bank of Kenya, the Capital Markets Authority and the National Bank of Kenya.

One of the biggest banks in Kenya in terms of number of branches, the National Bank is a prime target for banks which are eager to expand their footprint a in the country's booming banking business.

While the appetite for the shares in the marketplace is difficult to discern at this stage, a number of suitors have in the past expressed interest in acquiring the bank. As far back as 2005, Standard Bank of South Africa wrote a letter to the NSSF expressing an interest in acquiring the latter's stake in the bank.

At that time, the South Africans said their interest derived from the group's desire to have a distribution mechanism for their wholesale and retail banking products and services. It is not clear whether the South Africans will still be interested in National Bank, having acquired the CFC Group - which despite having a healthier balance sheet than NBK, does not have as many branches.

In Kenya, the demand by foreign investors for commercial banks - especially from West Africa and South Africa - for stakes in medium-sized banks and insurance companies of the size of the National Bank of Kenya has been on the rise. The two most prominent recent acquisitions were the purchase in 2007 of the former East African Building Society by the EcoBank Group of Nigeria and the merger of Stanbic Bank and the CFC Group.

The National Bank of Kenya started operating in 1968 at the height of agitation for Africanisation of the banking sector. It was to remain a wholly-owned government bank until 1994 when the NSSF acquired a 37.5 per cent stake that was at that time worth Sh750 million. The government sold another 20 per cent in 1995, reducing its total stake to 42.5 per cent.

A further 20 per cent was sold leaving the government with 22.5 per cent by 1996 which it continues to hold to date. Subsequently, the NSSF acquired additional shares from the Nairobi Stock Exchange, bringing its total stake to 48 per cent. Following a run on the bank in 1998, the government came up with a rescue plan of which billions of shillings were pumped into the ailing institution.

At first, the government deposited Sh4.5 billion in the bank. Thereafter, the Sh4.5 billion and NSSF's deposits amounting to Sh1.175 billion were converted into shareholder loans. In 2003, these shareholder loans were converted to preference shares structured with equity features so as to allow the bank to maintain adequate core capital as required by the Central Bank of Kenya.

In 2006, the government pumped in Sh21 billion through long term bonds into the bank in order to clean its balance sheet of government guaranteed loans. A due diligence process conducted by audit firm, PriceWaterHouseCoopers, as part of preparations for the bank's privatisation has shown that the bank is currently adequately capitalised and meets CBK's prudential guidelines.