NIC, Commercial Bank consider merger

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By Reuters

Kenya’s NIC Bank and Commercial Bank of Africa will hold talks on a potential merger, to combine their separate expertise in retail and corporate banking, the banks said in a joint statement on Thursday.

NIC is a mid-sized lender while CBA is ranked among the top banks in the East African nation. The potential merger; whose value is not yet known, would be the first major deal announced in the industry since the government capped commercial lending rates in 2016.

“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, which would 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 rate cap, set at four percentage points above the central bank’s benchmark lending rate which stands at 9 percent, has hit second-tier lenders’ ability to price risk, causing the quality of their loan book to deteriorate and forcing lenders such as NIC to consider suitors, analysts said.

“The long-awaited consolidation in the sector is here,” said Aly Khan Satchu, an independent analyst in Nairobi.

Valuations on the local bourse had also fallen to a 10-year low after a prolonged bear run this year, making the potential deal attractive, he said.

The potential merger has also been welcomed by Treasury Cabinet Secretary Henry Rotich because a deal would help strengthen Kenya’s financial sector.

“Consolidation of the financial sector is something of importance,” Henry Rotich said. “Treasury has been supportive of a sector that is well served by stronger banks.

“So as you see more banks consolidating on voluntary basis, that is a welcome move, so that we can ensure that the banks are strong enough to provide sufficient credit to SMEs.”

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