Investments & Mortgages Bank, seventh in the table below, has Tier 1 capital of 2426m shillings ($35m), meaning that the 34 banks below it are tiny in terms of Tier 1 capital and assets. None of Kenya’s banks approach the Top 1000 World Banks listing, which this year cut off at $231m.
The central bank tried to promote consolidation three years ago by raising the minimum capital requirements, but backtracked after intense lobbying by smaller banks.
Three years of relative stability in the economy and sustained growth has led to increased confidence which, in part, enabled Commercial Bank of Africa to acquire First American Bank of Kenya in 2005, the first bank merger for some years. Early this year, CFC Bank said it was examining the prospect of a merger with Stanbic Bank Kenya, which should be completed by September. Standard Bank of South Africa will own about 60% of the merged entity while CFC shareholders will own about 40%.
The merger will reduce the number of banks by one but in May the only building society in Kenya acquired a universal banking licence. A recent report on the Kenyan banking sector by rating agency Fitch showed the 13 banks discussed, which included our Top 7, accounted for 87% of the system’s earnings and 81% of the system’s assets at the end of FY06. Fitch regarded the sector as ripe for consolidation largely because of the lack of scale that causes margin pressures and higher cost/income ratios. Overall capital levels were also regarded as low.
Resistance to consolidation will again come from smaller banks, which are largely privately owned and whose owners may be reluctant to sell as financial performance improves. But if Kenya is serious about strengthening its banking sector, it needs to have the courage to take the right decisions in the face of opposition from vested interests.TOP BANKS IN KENYA: DECEMBER 31, 2006 (SHILLING MILLIONS)
