“A combined entity would create a complementary base of over 38 million customers, a strong digital proposition and a robust corporate and asset finance offering.”
NIC Bank and Commercial Bank of Africa are set to begin talks on a potential merger they said in a joint statement on Thursday.
“The boards believe that combining the business of two highly profitable entities would create enhanced capacity through capital consolidation and strong liquidity to capture strategic growth opportunities,” they said.
The transaction will be subject to shareholder and regulatory approval, would allow both banks to invest in new technology, boost products for customers, and generate higher returns, they said.
The boards of both the banks -James P M Ndegwa, Chair NIC Group PLC and Destario A Oyatsi, Chair Commercial Bank of Africa Limited said, “A combined entity would create a complementary base of over 38 million customers, a strong digital proposition and a robust corporate and asset finance offering.”
Besides, the merger will lead to them having a combined KSh 443.3 billion in total assets ahead of Co-operative Bank of Kenya.
.@nicbankkenya vs @CBA_Group_ financial position comparative analysis as of 30th June 2018 | pic.twitter.com/QPdPAdTuHk
— Rich Markets (@RichEconomics) December 7, 2018
During this phase of discussions, the two entities will continue to operate independently.
NIC Group Q3’2018 financial results, Cytonn Investments observes that it is currently sufficiently capitalized with a core capital to risk-weighted assets ratio of 18.1%, 7.6% above the statutory requirement.
With the announcement, various analysts have also raised their views.
“The choice of Mobile Banking and Digital Banking should be interesting to see. These two banks are pretty different in their approach to technology. NIC pretty much outsourced their mobile banking to Craft Silicon with its Elma white label solution. CBA has quietly built a solid and sizable in-house dev team and owns the IP on its Mobile Banking Platform. My guess is as good as yours as to whose approach will win,” says Ali Hussein Kassim, Co-founder and CEO Fintexx.
Kenya’s banking environment has been going through consolidation as evidenced by heightened M&A activity over the last 4 years. During H1’2018, SBM Bank Kenya Ltd completed the acquisition of certain assets and liabilities of Chase Bank Limited, which was under receivership. 75% of the value of all moratorium deposits at Chase Bank were transferred to SBM Bank Kenya. The remaining 25% will remain with Chase bank Limited under Receivership (CBLR).
It is notable that acquisitions are also happening at much cheaper valuation compared to earlier bank acquisitions for example Fina, K-Rep and Equatorial Commercial Bank having been at 3.2x, 1.8x and 2.3x P/B, respectively, while recent acquisitions are happening at between 0 .8x to 1.7x P/B, and hence it is a great time to be an acquirer.
Additional information from Cytonn H1’2018 Banking Sector Report.
