Kenya: Banks in Kenya Realigning for the 3rd Evolution to Take On Africa

Kenyan banks are re-positioning themselves to take on big West African Banks as equity shifts from local shareholders to big equity funds across the globe

For decades, Kenyan banking industry was controlled by multinationals mainly Barclays, ABN AMRO Bank and Standard Chartered Bank with strict bank environment that slowed down economic growth.

Though there existed homegrown government affiliated banks like Cooperative Bank, Kenya Commercial Bank and National Bank, the industry was mainly a foreign controlled sector.

Then in the early 2000s, Equity Bank took the biggest challenge to the main banks revolutionizing how Kenyans accessed credit and taking banking sector to the common borrowers in what was seen as the second evolution of banking in Kenya.

2nd bank evolution in Kenya

One could get a loan based on the number of cows he has and the amount one could borrow went lower allowing small scale business people to access and service their loans.

However, the biggest gain was the local shareholders who managed to edge the 'big boys'. Equity Bank and Family Bank were owned and run by shareholders mainly from the tea and coffee growing areas of Kenya unlike the international banks whose local shareholding was dwindling.

As of 31 December 2017,Equity Group Holding Limited, the overall company that owns Equity Bank Kenya had assets exceeding KSh 524.5 billion. 2018 was saw even greater growth with a customer base in excess of 9.2 million in the six East African countries that it serves, making it one of the largest commercial banks on the African continent, by customer numbers.

Family Bank has also grown rapidly edging out the international players. The introduction of agency banking saw the 2nd evolution kick off to a massive recruitment and convenience to customers.

This phase of banking in Kenya has seen dominance by the two banks as well as government backed banks like Cooperative Bank and Kenya Commercial Bank making it to the top 5 banks in Kenya as well as venturing into the region.

The period has also seen banks leverage on technology to reach more people and offer more services.

Evolution of Kenyan banks to take on Africa

Now, banks are jostling for a new evolution, probably the third. Aware that the African economy is appealing to African grown, and specifically Nigerian Banks, Kenyan Banks have started consolidating themselves to form formidable outfits to compete with these big banks of Africa.

Consolidation will place the new institution at a more competitive position to compete with major continental lenders such as those in the Western Africa market.

They include Nigeria's biggest lender by market value- Guaranty Trust Bank and United Bank for Africa Plc which is among the largest lenders by revenue. They two have made significant advances in the East African market.

Last year, CBA Bank, a local shareholding bank linked to President Uhuru Kenyatta's family announced it had reached a merger agreement with NIC Group Bank. NIC Bank is affiliated to the Family of Kenya's first indigenous Central Bank of Kenya Governor Phillip Ndegwa.

"Shareholders and bondholders of NIC Group PLC and the investing public are advised that the Company's Board of Directors have authorized the commencement of discussions with Commercial Bank of Africa Limited, which could lead to the eventual merger of NIC Group PLC and Commercial Bank of Africa Limited," the lenders said in a joint statement.

"Upon conclusion of these discussions and subject to approvals from shareholders of the two entities and regulatory authorities, it is expected that the merger will create one of the largest financial services group in the region," said chairpersons James Ndegwa (NIC) and Destario Oyatsi(CBA).

A merger of the two is expected to form the third-largest lender by assets, shaking up the Tier 1 platform which is currently being enjoyed by the likes of KCB Group , Equity Group and the Co-operative Bank of Kenya.

It will push the new entity's total assets to the tune of Ksh444 billion displacing Co-operative Bank of Kenya from the third position on the Tier 1 platform.

The top two lenders in the category are KCB and Equity which enjoy an asset base of about Ksh684 billion and Ksh560 billion respectively.

Realignment of Kenyan Banks

Reports are now emerging that CBA Bank is even looking further to increase its foothold with talks going on to the purchase of Jamii Bora Bank. According to reports in Business Daily, Commercial Bank of Africa (CBA) has made a Sh1.4 billion cash offer to buy out Jamii Bora Bank.

The combined CBA, NIC and Jamii Bora business will rank as Kenya's third-largest banking entity after KCB and Equity. The three will have total assets of about Sh457 billion, rivalling KCB and Equity, which have assets of Sh684.1 billion and Sh560.3 billion respectively.

Jamii Bora Bank was founded, as a Charitable Trust, by fifty destitute families on the streets of Nairobi, Kenya's capital and largest city. In March 2010, it merged with another financial institution with a banking license and transformed into a fully fledged commercial bank.

With this consolidation and mergers, Kenyan banks are now attracting high end investors, venture capital funds, and other foreign investors. For example, Jamii Bora Bank has Catalyst Holdings as one of the share holders.

The biggest shareholder of Equity Group Holding Limited is Arise B.V. a private equity firm specializing in small and medium enterprises in middle market, later stage, mature, turnaround, emerging growth, industry consolidation, recapitalizations, buyout, and growth capital investments.

With this growth, Kenyan banks are bound to take on big African banks like Standard Bank of South Africa, SBM Bank of Mauritius, United Bank of Africa (UBA), Ecobank, Bank of Africa (BOA) and Guaranty Trust Bank all from Nigeria.

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