Bank mergers good for sector’s stability

A National Bank of Kenya branch

Over the last three months the central bank of Kenya gave node to the merger of the Commercial Bank of Africa (CBA) and NIC Group .

This is because the two institutions are solid and profitable in their respective segments. CBA is a tier one bank while NIC is classified as tier two.

Basically merger happens when the institution wants to solidify their financial strength.

This is the fourth merger or acquisition in the country in the last two years. Giro Commercial Bank was acquired by I&M Group in February last year; Diamond Trust Bank Kenya took over Habib Bank in August last year; Fidelity Commercial Bank merged with SMB Bank in May.

Recently, the Kenya Commercial Bank (KCB)announcedits in the process to acquire its move to acquire the National Bank of Kenya(NBK) through a share swap did not give much detail.

The statement only said that the deal would involve 10 ordinary shares of NBK for every one ordinary share of KCB. If it works, we will have seen the end of one of the most troublesome chapters in the country’s banking sector.

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Even though NBK has a weak balance sheet, it will bring to the table strong customer-facing assets for the combined entity. It has retained branches in exclusive locations at airports, ports of exit and entry into the country, giving it advantage when it comes to inter-trade business.

Mergers and Acquisitions have become a prominent feature in Kenya’s banking industry. The Central Bank of Kenya and shareholders of banking institutions in Kenya have a positive inclination to mergers and acquisitions.

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Many of the State-owned banks have been in poor financial health, only managing to limp along because of support and regulatory forbearance from the Central Bank of Kenya (CBK) .

A good number are currently suffering crippling liquidity problems, forcing them to resort to complete dependence on the CBK discount window for liquidity. In the interbank market, they are unable to access liquidity easily because the large banks are not willing to lend to them, choosing to deal only with their large peers.

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Kenya has witnessed a mix of dismal performance by some merged banking institutions and very positive performance by others. This has left stakeholders in the banking industry wondering whether mergers and acquisitions should be encouraged in the industry.

The study found that although mergers and acquisitions led to improved profit efficiency, large banks benefited more from improved performance than the small banks.

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