Nigerian lenders add fuel to Kenya’s deal-making frenzy

Nigerian banks
The city of Lagos, Nigeria. PHOTO/COURTESY:

Nigerian banks seeking to escape the malaise gripping Africa’s biggest economy could find refuge by expanding in Kenya, where the industry is ripe for deals and a contraction might still be avoided.

It will also offer lenders from Lagos a reprieve from rules that are far more onerous than what their counterparts in Nairobi have to contend with.

“Nigerian banks are faced with a very punitive regulatory environment at home, so their thinking is to potentially scale-up their operations out of Nigeria so that those can contribute significantly more to their group revenue and profit. These banks need to hold 27.5% of their cash as reserves which is six times that of their Kenyan counterparts, while at the same time having to extend 65% of their deposits as loans,” said Adesoji Solanke, director for frontier and sub-Saharan African banks equity research at Renaissance Capital.

Kenya has too many banks relative to size of the population, meaning more consolidation is inevitable following at least five takeovers over the past year, Solanke said. There is a concentration of a few big banks at the top and a long tail of small- and mid-sized firms, he said.

“You would likely continue to see international banks trying to find ways to either get into the market by buying one of the banks in the country or where they do have operations currently in the country, trying to scale-up their existing businesses,” Solanke said.

Acquisition deals that have so far been approved in Kenya’s banking industry include, Co-operative bank’s last month approved the purchase of 90% of Jamii Bora Bank., now renamed Kingdom Bank Ltd. Earlier this year, Nigeria’s Access Bank Plc earlier this Transnational Bank Ltd while KCB Group Plc completed the takeover of the National Bank of Kenya last year. Nigeria’s Guaranty Trust Bank Plc, the West African nation’s biggest lender by market capitalization, also operates in Kenya, having acquired Fina Bank Group in 2014.

Renaissance Capital’s top banking stock pick in Nigeria is Guaranty Trust Bank because of the high quality of its earnings. A plan to set up a holding company will allow the lender to offer other financial services, which could position it for even stronger growth. The Lagos-based firm is also splitting its banking division into four separate subsidiaries to oversee Nigeria, West Africa, East Africa and its U.K. unit.

ALSO READ: Banks hurry to observe repositories rule


Please enter your comment!
Please enter your name here