Banks
CBA
Commercial Bank of Africa
Deepak Dave
Disqus
FILE PHOTO
Grant Thornton
JavaScript
Kenya
Kunal Ajmera
Nairobi
NIC
NIC Bank
Riverside Capital Advisory

Mergers to help banks weather interest rate caps

Kenyan commercial banks are coming under pressure to merge and create entities large enough to survive financial crisis in the wake of stricter regulatory and competitive landscape. Analysts have cited merger talks between NIC Bank #ticker:NIC and Commercial Bank of Africa (CBA), which if successful will create the third-largest lender by assets as a potential new trend.Banks were in September spared a law that would have compelled them to increase core capital from Sh1 billion to Sh5 billion over the next four years after MPs voted to reject amendments to the Finance Bill, 2018.

Banks were in September spared a law that would have compelled them to increase core capital from Sh1 billion to Sh5 billion over the next four years after MPs voted to reject amendments to the Finance Bill, 2018. FILE PHOTO | NMG

Kenyan commercial banks are coming under pressure to merge and create entities large enough to survive financial crisis in the wake of stricter regulatory and competitive landscape. Analysts have cited merger talks between NIC Bank #ticker:NIC and Commercial Bank of Africa (CBA), which if successful will create the third-largest lender by assets as a potential new trend.“The smaller banks are at this stage trying to move water uphill as they get crushed without products, without pricing power and without customer loyalty. The small ones for example less than Sh20 billion in deposits need to merge, cut costs and develop product and fee capability,” said Deepak Dave, a risk management expert with Nairobi based Riverside Capital Advisory.

“The ground has shifted beneath the industry’s feet. Every bank board needs to look five years ahead rather than one quarter ahead.”According to Kunal Ajmera, the chief operating officer at Grant Thornton a merger would give especially small lenders the ability to compete, provide new products, expand in local and overseas markets, acquire state-of-the-art technology, bring in skilled staff and reduce operating costs.“There are too many banks for an economy the size of Kenya and with the new capital requirement many smaller banks are finding it hard to survive,” said Mr Ajmera.“Also interest rate cap has reduced commercial lending. Banks are being too cautious to lend so smaller banks are of course feeling the repercussions.”Banks were in September spared a law that would have compelled them to increase core capital from Sh1 billion to Sh5 billion over the next four years after MPs voted to reject amendments to the Finance Bill, 2018.

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