KCB Group Eyeing Mergers and Acquisitions to Enhance Growth

KCB Group, Kenya’s biggest bank by assets, in a bid to enhance growth is looking to join a series of consolidation in Kenya’s banking industry in the next five years, Joshua Oigara, the Group’s chief executive hinted on Monday.

In response to the 2016 cap on commercial lending rates coupled with the tough central Bank regulations, Kenyan banks are moving to consolidate to ease the stress.

Oigara, during an interview with the Reuters, said that the next frontier for growth for KCB group in the market will be inorganic growth because ultimately it is about taking market share.

Although he didn’t give much of the details, Oigara said that Kenya’s banking industry will continue to consolidate.

NIC Bank and Commercial Bank of Africa in December 2018 held talks for a possible merger. The move was welcomed by the government, which is keen on strengthening the country’s banking sector. In 2017, Diamond Trust Bank bought Habib Kenya.

The government’s introduction of the cap on commercial lending rates was implemented as a strategy to help small businesses get easy access to capital at affordable rates. However, the banks have since become wary about lending to small and medium-sized enterprises claiming difficulty in risk assessment.

Oigara claims that as a result of the cap rate, bankers were still engaging with lawmakers to find a viable solution that will work for both the industry and reverse the steep drop in private sector credit growth.

“The best model has to be risk-based pricing on the customer’s profile, so in the long run we have to remove the cap,” Oigara said.

Henry Rotich, the Finance CS, attempted to repeal the cap rate in 2018 but lawmakers blocked his move saying that banks should not be allowed to extort money from customers through high rates.

Meanwhile, KCB Group, which has branches in Rwanda, Burundi, Uganda, Tanzania, and South Sudan is expecting a regulatory approval for the purchase of assets worth more than 25 billion shillings from Imperial Bank that collapsed in 2015.

If successful, the deal will bolster KCB’s intent to strengthen SME’s growth especially since Imperial Bank had a considerably large customer base.

“KCB’s return on equity was set to climb towards the 24 percent mark after dropping to 20 percent from 25-27 percent in the wake of the rate cap,” Oigara said.

He noted that the recovery was mainly as a result of transactions done through mobile lending services like KCB M-Pesa, offered in partnership with Safaricom.

“The boom in mobile phone lending has also been driven by demand from small traders locked out of normal bank loans by the rate cap,” Oigara said.

He added that they are expecting Group’s non-funded (fee) income, which is currently standing at around 33 percent, to reach 40 percent (of total) by 2020.

Through the KCB M-Pesa platform, the bank lends out 300 million shillings daily, which is about half of the 600-700 million shillings lent out by all banks daily on such platforms.