Regulator gives conditions on CBA-NIC merger

The Competition Authority of Kenya (CAK) has approved the proposed merger between Commercial Bank of Africa (CBA) and NIC Group, but on condition.

The two successful lenders will have to retain all the employees for at least one year, this despite the two entities intimating there was a possibility of branch closures where overlaps existed.

The proposed merger will see CBA shareholders exchange their CBA shares for 53 per cent of the new shares in NIC, which will be the non-operating holding company for the merged entity, with shareholders of CBA, with 98.15 per cent stake of the issued and fully paid up share capital have already accepted the deal.

Over the last 8 years, there have been various consolidation activities in the banking sector, as banks either acquire smaller banks or merge and form strategic partnerships with other banks to form relatively larger companies.

Consolidation activity has picked up in the recent past as smaller banks that have struggled to operate under the interest rate cap regime are acquired by their larger counterparts, while some of the banks have been forming strategic partnerships. Some of the consolidation activity has also been driven by remediation of collapsed banks that had been under receivership, such as Imperial Bank Ltd, and Chase Bank Ltd.

Kenya’s banking sector’s stability will depend on how well its players are capitalized. With well-capitalized players, the sector would be better positioned to withstand any systemic risks and shocks, as well as facilitating financial intermediation, resulting to an increase in their investments in both high and low risk assets such as loans and government securities, leading to capital formation, increased investment, and consequently driving economic growth.

The sector is at the core of any economy, given the reliance of other sectors on services and products offered by the banking sector.

The sector’s main function of financial intermediation between depositors’ funds and credit provision serves as a catalyst of investment, by facilitating capital formation, thereby leading to economic growth and development.

Moreover, the importance of banking is even more pronounced in Sub-Saharan Africa, where there is over-reliance on the banking sector for funding, which ranges between 90.0% – 95.0% for SSA economies as opposed to 40.0% bank funding in advanced economies.