The announcement by Commercial Bank of Africa (CBA) and NIC Bank of a possible merger has opened discussions on what the merger will look like.
Some of the questions raised are as to whether they will all dissolve to form a new entity, losing both their names or one of them would seize using its name. In addition, considering that NIC is listed but CBA is not, questions have been raised on whether NIC will be delisted or not.
Dhahabu Kenya has interviewed insiders in the banks and established that the conversation on the merger started as early as 2014. Their goal is to make the two entities one big bank, that can have more appeal internationally.
Considering that the conversations started in 2014, it could give meaning to why James Macharia, the Cabinet Secretary for Transport was in cooperated into the government in 2013 and has remained in it since. In his time, he has handled the Health and Transport dockets. Before joining government, he was the CEO of NIC Group.
As a strong tier one bank, it can then negotiate good rates and investments in the global sector and also invite good ratings.
NIC is owned by the Ndegwa family while CBA bank is owned by the Kenyatta family.
According to Central Bank of Kenya (CBK) bank supervision report for 2017, for the period ended December 31, 2017, there were eight large banks with a market share of 65.98 percent, 11 medium banks with a market share of 26.10 percent and 21 small banks with a market share of 7.92 percent.
The report paints a picture of consolidation in the sector to boost performance and customer confidence. In 2017, there was the acquisition of Giro Bank by I&M Holdings Ltd in February, acquisition of Fidelity Commercial Bank Ltd by SBM Bank (Kenya) Ltd in May and acquisition of Habib Bank (K) Ltd. (HBL) by Diamond Trust Bank Kenya (DTBK) in August.
Eric Musau, the Head of Research at Standard Investment Bank said that consolidation will bring about a much more robust competitor and possibly improve the return on equity for NIC.
“It is possible that the combined entity plans to expand across the continent, so capital becomes an important need” he added, in response to what could have motivated the move.
Already, CBA is in five countries after using M-shwari to expand to Ivory Coast and Rwanda – where they recently acquired Crane Bank Rwanda. It is also in Uganda, Tanzania and Kenya. It is also targeting Mozambique and Ethiopia.
If the merger is successful, the two will create Kenya’s third biggest bank by assets.
Based on the third quarter financial results of the two companies, CBA asset base is sh227 billion while NIC asset base is sh187 billion. A combination of the two would put the total assets at sh414 billion.
Kenya Commercial Bank (KCB) which is the largest bank by assets base is at sh594 billion followed by Equity Bank at sh424 billion.
Insiders affirmed that the root will see NIC bank increase its share capital to enable CBA buy fifty percent shares to have equal shareholding between the two banks. What they have yet to agree is on the name, whether they will both change or only one will. For NIC, considering that it is already listed and CBA also wanting to be part of it, there will be no delisting but applying for necessary approvals from the Capital Markets Authority (CMA), the listed companies’ regulator.
Musau asserted that it is likely the new entity will be listed. “If this happens, access to growth capital will also be improved”.
It is this capital that will further ensure the continental ambitions are realized with ease.