Barclays Kenya `Open Minded’ on Takeovers as Industry Wilts

NAIROBI (Capital Markets in Africa) – Barclays Bank of Kenya Ltd. is ready to make acquisitions in East Africa’s largest economy as the industry struggles to cope with interest-rate caps that have cut profit and curbed lending and regulators urge the industry to consolidate.

“Are we open to acquiring? Absolutely,” Chief Executive Officer Jeremy Awori said in an interview on Wednesday in Nairobi, the capital. “So you’ll either be looking to acquire capabilities you don’t have, which will be mutually compatible, or you’d be able to see efficiencies that you’d be able to gain being together, rather than running two separate entities.”

Awori’s comments that he is “very open minded” to making purchases that will boost shareholder value comes as KCB Group Ltd., the country’s biggest lender by assets, bids for state-owned National Bank of Kenya Ltd. KCB is seeking to buy NBK as the regulator urges consolidation among its 42 lenders, which is more per person than South Africa, the continent’s most industrialized economy, and Nigeria, the biggest oil producer.

The stock fell as much as 2.5 percent, the most since June 27, before paring losses to close 1 percent down at 9.85 shillings by the end of Nairobi trading. The shares have gained 7.7 percent so far this year, under performing the Nairobi Securities Exchange All Share Index, which has risen 13 percent in the period.

The government is seeking to consolidate the lenders it owns, Treasury Secretary Henry Rotich said in an interview on Thursday. The government holds about 18 percent of KCB, while the Treasury and the National Social Security Fund together have 70 percent of NBK. The state also owns Consolidated Bank of Kenya Ltd., Development Bank of Kenya Ltd. and Kenya Post Office Savings Bank.

Government Policy
“It would be good for government to have probably one or two banks at most,” he said. “One focusing on niche markets, another one doing retail. It makes sense for really that to happen. It is in line with our policy.”

Kenya’s largest banks all posted a drop in first-quarter earnings as a government-imposed limit on commercial lending rates reduced what they can charge for loans. The ceiling on interest rates — 400 basis points above the central bank’s benchmark rate — is forcing lenders to compete more aggressively on pricing for loans and impairing their ability to provide loans to riskier clients.

Barclays Kenya, majority owned by Johannesburg-based Barclays Africa Group Ltd., expects to conclude a voluntary early-retirement exercise that targets 130 staff members by the end of the month and close seven branches by October to save costs. London-based Barclays Plc last month reduced its controlling stake in Barclays Africa to below 20 percent.

Regulators must ensure that the takeover by KCB of NBK doesn’t create an unfair playing field, Awori said. KCB is seeking to convince the Treasury to centralize 80 percent to 90 percent of all government deposits with the combined lender to lower its cost of funding, the Nairobi-based Nation Newspaper reported on June 10.

Talks about the KCB and NBK transaction are still ongoing, Rotich said, adding there’s no plan to centralize deposits.

Choosing to centralize government deposits in a single commercial lender will create a “super bank” that may cause liquidity problems for the banks that currently compete for cash holdings with different offerings, the Barclays Kenya CEO said. Talks between the government and the Kenya Bankers Association with regards to state deposits are continuing, Awori said.

“There’s a need to think through the pros and cons of this,” he said. “Just the way we had the interest-rates law, you don’t want a situation where you lurch into it.”

Source: Bloomberg Business News