January 31, 2019 / 6:07 AM / 10 months ago

UPDATE 2-Kenyan bank NIC to merge with Commercial Bank of Africa

(Adds CBA chairman comment, NIC Group share price, background)

By George Obulutsa

NAIROBI, Jan 31 (Reuters) - Kenya’s NIC on Thursday announced plans to merge with Commercial Bank of Africa (CBA) to create the third-biggest bank in the region, sending NIC’s shares up more than 20 percent.

The merged bank will have an asset base of 444 billion Kenyan shillings ($4.4 billion), making it the region’s third-largest by assets after KCB and Equity.

“Today we announce our intention to merge NIC Group and CBA Group,” Chairman James Ndegwa told reporters.

There has been pressure on Kenyan banks to consolidate in response to a 2016 cap on commercial lending rates. The rate cap has hit second-tier lenders’ ability to price risk, affecting the quality of loans and forcing lenders such as NIC to consider suitors, analysts have said.

The NIC deal is the first in the industry since the government imposed the cap.

However, Ndegwa said the cap was not an influence on their planned merger.

“Even if interest rate caps were not there, this merger would have been considered. Rate capping or not, we would still be here,” he said.

In December, Finance Minister Henry Rotich had welcomed the merger talks between the two banks, because a deal would help to strengthen the financial sector.

The transaction will involve a share swap between the two banks, with current NIC group shareholders owning 47 pct of the merged entity and CBA shareholders owning 53 pct. NIC group will remain listed, NIC CEO John Gachora said.

The two banks said they would not disclose the monetary value of the transaction to the market.

NIC aims to get shareholder approval in the first quarter of 2019, regulator approval in the second quarter, and formally merge in the third quarter, Gachora said.

At 0813 GMT, NIC’s shares were up 24 percent to trade at 36.00 shillings on the Nairobi Securities Exchange, according to Refinitiv data.

In December, the two banks had said they would hold talks on a potential merger to combine their expertise in retail and corporate banking.

NIC is a leading bank in asset financing and has a strong base of mid-sized corporate clients. CBA has a strong retail client base, including digital-only customers on its M-Shwari mobile platform.

After the merger, the banks said they would also have a presence on mobile platforms in Tanzania, Uganda and Rwanda and Ivory Coast, in collaboration with telecoms firms in the four countries.

The merged group will also have more than 100 branches, spanning Kenya, Tanzania, Uganda, Rwanda and Ivory Coast. ($1 = 100.7500 Kenyan shillings)

Reporting by George Obulutsa; Editing by Himani Sarkar and Jane Merriman

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