Biggest Kenyan Bank Makes Takeover Bid for State-Owned Rival

NAIROBI (Capital Markets in Africa) – Kenya’s biggest bank by assets offered to buy a state-owned lender as the industry struggles to cope with interest-rate caps that have cut profits and curbed lending.

KCB Group Ltd. provided an expression of interest to the Treasury to acquire a controlling stake in National Bank of Kenya Ltd., Judith Odhiambo, a spokeswoman for Nairobi-based KCB, said in an emailed response to questions on Monday. “Further details will, however, be provided in due course in line with the guiding regulatory requirements,” she said.

Shares of National Bank of Kenya, or NBK rallied the most in almost seven months to lead gains on the Nairobi Securities Exchange, while KCB slid the most in almost seven weeks. The potential cost of the acquisition and the risk of rising non-performing loans in the industry outweighs the benefits for KCB of increasing its share of government deposits, said Faith Mwangi, a research analyst at Genghis Capital in Nairobi.

“There’s very little benefit for KCB,” she said. “They both already control government deposits,” with about 60 percent of the market between them.

Shares of NBK jumped 9.3, the most since Nov. 16, to 7.65 shillings by the close in Nairobi, valuing the company at 2.36 billion shillings ($23 million). About 15,500 shares changed hands, almost 80 percent of the three-month daily average. KCB dropped 3.1 percent to 38.75 shillings for a market value of 118.8 billion shillings.

Capital Shortage
NBK requires a capital injection of at least 2.6 billion shillings to meet statutory requirements, Nairobi-based Cytonn Investments Management Ltd. said in a research note on June 2. The lender’s capital to risk-weighted assets ratio declined to 11.6 percent at the end of March compared with the statutory requirement of 14.5 percent. The bank also has the highest non-performing loans ratio among listed banks at 42.9 percent over the same period.

KCB would probably need to issue about 38 million shares to acquire the 70 percent stake in NBK owned by the National Social Security Fund and the National Treasury. “With that capital raising, KCB has to go to shareholders and explain to them,” Mwangi said. “It’s going to be a hard sell.”

The East African nation’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.

A spokesman at NBK didn’t immediately respond to emailed questions.

Source: Bloomberg Business News