KCB, NBK merger to create Sh1 trillion bank

The planned merger between Kenya’s biggest lender by assets, KCB Group, #ticker:KCB and the State-owned National Bank of Kenya (NBK) #ticker:NBK is set to create a giant bank whose combined balance sheet is expected to hit Sh1 trillion in three years.

KCB, which also operates in Uganda, Tanzania, Rwanda, Burundi and South Sudan, last month offered to buy NBK through a share swap of one KCB share for every 10 of NBK.

The lender said Thursday in the latest circular to shareholders it expects the takeover deal to close by October this year, subject to approval from the shareholders of the two banks as well as local market regulators.

KCB proposes to maintain NBK as a standalone subsidiary of KCB Group for a period of two years post-acquisition and thereafter fully integrate NBK into KCB Bank Kenya.

The combined giant lender will tower over rivals both locally and in the region with a mega balance sheet of Sh828 billion as per the two lenders’ December 2018 disclosures.

KCB Group’s balance sheet stood at Sh714 billion while NBK’s stood at Sh114 billion at the close of last year.

“The combined balance sheet will increase capacity for KCB to lend to a wider customer base.

“The merged entity will have a unique opportunity to create a Sh1 trillion balance sheet financial institution by end of 2022,” said KCB in the shareholders’ memo.

Significant re-arrangement

The underway merger marks the latest significant re-arrangement of Kenya’s banking landscape in a decade.

Commercial Bank of Africa (CBA) is in advanced talks with rival NIC Group for a merger, setting the stage for the creation of Kenya’s third-largest lender by assets.

Equity Bank Group’s assets were valued at Sh573.3 billion as at December 2018 disclosures while those of Co-operative Bank stood at 413.4 billion in the same period.

Co-op Bank’s balance sheet is shy of what the CBA/NIC balance sheet will command at Sh453.6 billion.

But in what could come as a blow for NBK workers, KCB in the memo discloses that the merger may result in job losses in the near future as KCB eyes increased efficiency.

The workers could get some respite, however, if the competition watchdog orders KCB to retain them for a certain period going by the antitrust agency’s recent directives.

The Competition Authority of Kenya (CAK) director-general, Wang’ombe Kariuki, recently ordered soon-to-merge lenders NIC and CBA to retain their workers for a year.

“This transitional integration period is necessary to streamline human resources, systems, processes and procedures to realise the full value of the envisioned efficiencies and productivity synergies post-acquisition,” said KCB.

KCB announced that it has already received a nod from the Capital Markets Authority (CMA) to continue with the transaction. The NBK board is currently reviewing the offer as KCB awaits a nod from both the CAK and the Central Bank of Kenya (CBK) by end of July.

KCB will be hoping to overcome headwinds from Parliament, with the deal currently being the subject of a probe by a House committee.

A section of MPs have argued that there should have been public participation, citing the fact that NBK is a publicly owned entity.

According to KCB’s timelines, the deal will be completed by October 8, followed by issuing and listing of additional KCB shares on the Nairobi bourse.

“If acceptances of 75 per cent of the offer shares are received, and subject to approval from the Capital Markets Authority, the offer shares will be de-listed from the NSE,” said KCB.

“If the offer is accepted by NBK shareholders holding 90 per cent of the offer shares, KCB intends to apply the provisions of the takeover regulations to compulsorily acquire the remaining shares of NBK.”