NIC Bank And CBA In Merge Talks

NIC Group and Commercial Bank of Africa (CBA) issued a joint statement indicating that the two banks will hold talks on a potential merger subject to due diligence processes and approval from shareholders,

The lenders on Thursday said they are eyeing effecious of discussions on the merger and obtaining relevant approvals from shareholders of the two entities and regulatory authorities.

The potential merger believe combining of two highly profitable entities will enhance growth of the new entity through capital consolidation and strong liquidity to capture strategic growth opportunities thus providing the capability to undertake large transactions.

Commercial Bank of Africa (CBA) is majority-owned by the Kenyatta family while the Nairobi Securities Exchange- listed NIC Group is partly owned by the billionaire businessman James Ndegwa’s family. If successful, the planned merger of the midsized NIC Bank and the tier one CBA Bank would create one of the largest financial services groups in the region.

CBA’s total assets stood at Kshs 242.6 bn a compared to NIC’s Kshs 201bn indicating that both banks have a strong asset base. Net loans and advances stood at Kshs 115.1 bn for CBA and Kshs 114.9 bn for NIC during the same period while investment in government securities was at Kshs 77.3 bn and Kshs 60.2 bn respectively. However, NIC seems to be generating higher interest income than CBA as indicated by the higher yield on its interest earning assets of 10.8% compared to CBA’s 4.9%, and consequently a higher Net Interest Margin (NIM) of 5.8% compared to CBA’s 4.9%.

“It is the view of the two boards that the potential merger would bring together the best in class retail and corporate banks with strong potential for growth in all aspects of banking and wealth management,” They two banks stated.

“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.”

In conclusion, we expect that the merger will provide an opportunity for the new entity to grow by tapping into both retail and corporate banking.  With a potential combined market share of 10.9% by total deposits, the new entity upon merger would be the second largest by market share, second only from KCB Bank that commands approximately 14.7% market share as per the Central Bank of Kenya’s (CBK) Banking Supervision Report 2017. This would place the new entity on a strong position to play an important role in the Kenyan banking sector.

We are of the view that the industry should and will see more consolidation, as smaller banks with depleted capital positions are acquired as their performance deteriorates due to the sustained effects of the Banking (Amendment) Act 2015. We note that the industry needs fewer but stronger players to ensure the sector remains stable.