KENYA’S BANKS, STYMIED AT HOME, SEEK GROWTH ABROAD

Kenya's banks are having to stretch their legs in the region to make money.

Access to credit for small businesses across sub-Saharan Africa is a challenge, with a reported annual financing shortfall of $330 billion across the region.

In Kenya, a 2016 regulation to protect customers from expensive loan repayments has been cited as a factor in reduced levels of credit to small and medium-sized enterprises (SMEs) which has constrained overall economic growth.

Legislators and regulators have been at loggerheads over the introduction of a cap on interest rates set at 4 percentage points above the central bank’s benchmark. Most recently, a parliamentary committee announced in mid-September that it would block the move to remove the ban as has been mandated by the court.

• The cap poses challenges for banks in what is already a highly concentrated and competitive market, with a small number of the country’s 42 licensed lenders holding half of the market’s deposits and loans.

As banks respond to regulatory challenges in an increasingly competitive marketplace, two trends can be seen: consolidation at home and expansion in external markets.

Stronger at home

Mergers and acquisitions have been prevalent in Kenya’s banking sector, with three mergers and six acquisitions taking place since 2010.

Given the large number of market players, a level of consolidation has been inevitable, though the pace has picked up since the introduction of the interest rate cap, with three acquisitions since 2016 and several major mergers announced in 2019.

• NIC Group and Commercial Bank of Africa received regulatory approval for a merger from shareholders and from the Competition Authority of Kenya in January, and are awaiting approvals from other authorities.

• In April, KCB, recognised as the biggest bank by assets, submitted a bid to acquire a smaller lender, National Bank of Kenya, a deal which has been informally approved by the regulator, though a number of issues are still outstanding as of September 2019.

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