Local lender NCBA has urged the Central Bank of Kenya (CBK) to increase safety buffers to drive more takeovers in Kenya, East Africa’s largest economy.
According to NCBA Chief Executive (CEO) John Gachora, raising minimum capital requirements as much as tenfold to Ksh.10 billion will “force marriages” between lenders too afraid of the risks that come with mergers and acquisitions. With over 40 commercial banks servicing 47 million people in the country, there should be no more than 15 institutions, including specialized banks, he said.
“It starts to force real sizable banks that can compete both on scale, coverage, reach, as well as pricing,” he said in an interview in the capital, Nairobi. “It’s hard to get the banks to play their rightful role if every day all you’re doing is competing on the margins,” the NCBA CEO explained
The lender recently became Kenya’s third-largest bank following the combination of Commercial Bank of Africa Ltd. and NIC Group Plc, setting off at least three other deals in the industry. The central bank and lawmakers have resisted efforts from the National Treasury to boost the amount of capital lenders need to set aside for potential shocks since 2015, fearing the rules may squeeze smaller banks and slow lending.
Even increasing core capital levels to Ksh.5billion won’t be enough to strengthen the industry, said Gachora, who is also vice chairman of the banking lobby group. The country’s nine biggest banks account for 85% of the sector’s profit before tax, according to Central Bank data.
The largest banks can be compelled to “assist” with the recapitalization of smaller institutions, Mr. Gachora explained with the other option being to get small lenders to merge with financial support from bigger companies, which would resolve challenges of scale.
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