Kenya’s banking landscape was the main centre of merger and acquisition (M&A) activity for the second year running in 2020, according to data provided by Mergermarket. This reflected both the strength of the Kenyan economy and the ongoing challenges faced by local lenders, exacerbated in the past year by the impact of Covid-19.
The east African nation remains one of the healthiest economies in Africa, and one of a handful that escaped recession in 2020, with the International Monetary Fund forecasting a 4.7% growth in gross domestic product for 2021. Yet while banks remain largely resilient and well capitalised, their profitability has suffered significantly due to the pandemic, in line with trends around the world.
Of particular concern is asset quality, which had seen worrying deterioration even before Covid struck. New guidance on loan classification introduced by the Central Bank of Kenya — giving distressed borrowers temporary relief on debt repayments — saw non-performing loans rise to 12.4% by the end of September, up from 9.8% a year earlier, according to Nairobi-based Cytonn Investments. The pressure on asset quality is particularly pronounced among smaller lenders in an overbanked market, which has prompted a slew of mergers in the past five years.
Consolidation continues
While M&A activity hit a high point in 2019 — led by Commercial Bank of Africa’s (CBA’s) merger with NIC Group and KCB’s acquisition of the National Bank of Kenya — consolidation in the sector continued in 2020. Kenya’s fourth largest lender, Co-operative Bank of Kenya, acquired a 90% stake in Jamii Bora, the country’s second smallest bank by market share. It has since been rebranded as Kingdom Bank by its new owners. The deal, completed in August, comes after CBA walked away from a deal to acquire Jamii Bora in January 2020.
Jamii’s exit from the Kenyan market is unlikely to be the last, given the struggles faced by small lenders and the sheer number of banks in the market despite recent consolidation, with the country’s top nine lenders holding 75% of banking assets in the sector overall.
The ratio of the number of banks per 10 million population in Kenya now stands at 7.1 banks per 10 million, which is a reduction from nine per 10 million five years ago
“The ratio of the number of banks per 10 million population in Kenya now stands at 7.1 banks per 10 million, which is a reduction from nine per 10 million five years ago, demonstrating continued consolidation of the banking sector,” said Cytonn Investments in its most recent report on the Kenyan banking sector. “However, despite the ratio improving, Kenya still remains overbanked as the number of banks remains relatively high compared to the population.”
In addition to their larger peers, Kenya’s smaller lenders have also attracted interest from outside the country, as increasing numbers of the region’s largest investors look to establish a toehold in the country. Nigeria’s Access Bank completed the acquisition of Transnational Bank in July 2020, becoming the third Nigerian lender to enter the country after UBA and Guaranty Trust Bank.
Access all areas
Nigeria’s largest lender by assets, Access Bank, is expanding aggressively across the continent. Deputy managing director Roosevelt Ogbonna told Bloomberg in November the company plans to operate in 22 markets with over 100 million customers by 2025, up from around 37 million in late 2020.
The bank made its entry into South Africa in 2020, with the acquisition of South African business lender Grobank in September. The deal will see Access invest up to R400m ($27.3m) in the bank over the next two years. Access Bank also consolidated its position in Zambia, with its local subsidiary acquiring retail and commercial banking operations to complement its existing wholesale and trade finance strengths in the southern African market.
Commercial International Bank, Egypt’s third largest lender, has also entered the Kenyan market, with the acquisition of a 51% stake in Mayfair Bank — which targets corporate customers and high net worth individuals — for $35.35m, as part of its wider African expansion strategy.
Kenya’s largest lenders increasingly looked for expansion opportunities outside their home market in 2020. I&M Holdings, parent of the country’s eighth largest lender, I&M, in July announced the acquisition of a 90% stake in Orient Bank in neighbouring Uganda. The acquisition complements I&M’s Uganda-based corporate finance advisory business, I&M Burbidge Capital, together with the bank’s presence in Rwanda, Tanzania and Mauritius.
Covid-19 disruption
Equity Bank, Kenya’s second largest bank, had been set to acquire banking assets in Rwanda, Tanzania, Zambia and Mozambique from Atlas Mara this year, but the Ks10.7bn ($97.8m) share-swap deal was called off in June 2020 by Equity, citing the impact of Covid-19.
Atlas Mara subsequently struck a deal in November with Kenya’s largest lender, KCB, to sell off its assets in Rwanda and Tanzania for $32m and $8m respectively. Meanwhile, Access Bank has held discussions with Atlas Mara about acquiring the latter’s assets in Mozambique, according to unconfirmed reports by Bloomberg in December.
2020 saw the acquisition of three of BNP Paribas’s African subsidiaries by Atlantic Financial Group
Founded in 2013 as a pan-African bank by entrepreneur Ashish Thakkar and former Barclays chief executive Bob Diamond, Atlas Mara has been dogged since its inception by lukewarm performance and high costs, with both of its founders departing within four years.
Equity’s sole deal of the year, announced in November, was the merger of its Democratic Republic of the Congo (DRC) subsidiary with fellow DRC-based lender Banque Commerciale du Congo, which it acquired in 2019. The deal, formally approved by regulators in January 2021, has created the country’s second largest lender.
BNP Paribas retrenches
Away from Kenya, 2020 saw the acquisition of three of BNP Paribas’s African subsidiaries by Atlantic Financial Group (AFG) via separate agreements signed in March, May and October. The deals saw AFG, the Côte d’Ivoire-based holding company for West Africa’s Banque Atlantique, acquire minority stakes in Banque Internationale pour le Commerce et l’Industrie du Mali, Banque pour l’Industrie et le Commerce aux Comores and Banque Internationale pour le Commerce et l’Industrie au Gabon.
The sales follow BNP Paribas’s announcement in April 2019 that it was looking to offload non-core assets in Africa, while declaring it would not pull back entirely. “BNP Paribas insists its presence in Africa is totally part of its international strategy and doesn’t plan to withdraw from the continent,” a spokesperson for the bank said.
