What Consolidated Banking Means to Kenya’s Banking Sector

By Soko Directory Team / February 18, 2019



CBK Announces Ksh 35Bn Tap Sale on the Infrastructure Bond

In what is probably the most disruptive development in recent Kenyan banking history, the Commercial Bank of Africa (CBA) and NIC Group are negotiating the terms of a merger.

The combined entity would become the third-largest lender by assets in Kenya. Mergers and acquisitions are not new to the banking sector.

The recent interest rate cap forced many smaller banks to consolidate with larger counterparts as they found it difficult to continue to operate. Before that, some mergers or acquisitions were the results of the remediation of collapsed banks that were put under receivership.

Some famous examples are KCB Bank committing to take over the struggling Imperial Bank in 2018 and CBA offering to buy out Jamii Bora Bank. Other times it’s just strategic – banks pool their strengths and use this combined muscle to create for themselves a competitive edge in the sector. The CBA and NIC coupling is a great example of this.

According to experts, a consolidated banking sector has the distinct advantage of stability and resilience, even during a harsh economic landscape. But how?

  1. Weeds out weaker players

Cytonn Investments reports that Kenya is overbanked. Kenya currently has 39 banks, many of which are poorly capitalized, have a low return on equity, or account for less than 1  of the total market share. Because of these reasons, smaller banks are more likely to suffer from systemic risks and shocks, and this has an effect on the entire industry. When they consolidate through mergers or acquisitions, the resulting entities are better able to weather any unfavorable conditions.

  1. Enhances public confidence

The public relies on banks to provide essential financial services. In order to provide these services, banks need to be able to attract and retain deposits, which can only happen if they are able to maintain public trust. Therefore, when institutions consolidate and present a stronger image, members of the public develop deeper confidence in their stability, and they deposit their funds there enabling these institutions to operate.

  1. Banking processes become more efficient

Mergers and acquisitions do not just happen haphazardly. Oftentimes, banks and other financial institutions merge as part of a deliberate growth strategy. When organic growth is no longer happening at a rate that is satisfactory, it could be the perfect solution. It also helps to make operations more efficient because institutions leverage their individual strengths to achieve a common goal.

  1. Enables more oversight into the sector’s activities

Consolidations require absolute transparency as well as supervision by regulatory bodies. This, in turn, reduces and could potentially end cases of corporate governance malpractice.

The banking sector lies at the center of our economy, and this is clear if we examine how other sectors rely on its products and services. Clearly, the sector and the country’s economy benefits from mergers and acquisitions. Thus, we can only hope that the current trend of consolidations persists.



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author








Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE

ARCHIVES

2019
  • January 2019 (256)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (252)
  • July 2019 (217)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (257)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (187)
  • 2017
  • January 2017 (183)
  • February 2017 (195)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (246)
  • June 2016 (183)
  • July 2016 (271)
  • August 2016 (249)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (109)
  • May 2015 (117)
  • June 2015 (121)
  • July 2015 (150)
  • August 2015 (157)
  • September 2015 (189)
  • October 2015 (170)
  • November 2015 (174)
  • December 2015 (208)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950