August 15, 2019 / 5:58 AM / 2 months ago

UPDATE 2-Kenya's KCB Group confident of sealing NBK deal as H1 rises

(Recasts with impact of NBK acquisition)

By Omar Mohammed

NAIROBI, Aug 15 (Reuters) - Kenya’s biggest lender by assets KCB Group is confident of sealing its takeover offer of National Bank of Kenya to increase its market share, its chief executive said after reporting a 5% rise in first-half profit.

Lenders in the East African nation have turned to consolidation to boost profit growth after the government capped commercial interest rates in 2016, crimping their margins.

An offer to National Bank (NBK) shareholders to swap 10 of their shares for 1 of KCB’s is currently open.

Lawmakers put a dampener on the deal last week when they said the government, which is NBK’s biggest shareholder, should reject the offer.

The call by the MPs prompted the market regulator, CMA, to say the fate of the transaction will depend on KCB attaining a minimum 75% acceptance by NBK’s shareholders.

KCB has set itself the goal of convincing nearly all the shareholders to accept the offer, which will close on Aug. 30, Joshua Oigara, the group’s chief executive said.

“The best target is to reach 90% in terms of a success rate for all the shareholders,” Oigara told Reuters after an investor briefing.

The acquisition of NBK, which the government says is the best option to deal with its under-capitalisation, will bolster KCB’s market share, especially in banking for government entities, where NBK has an advantage.

“This is a business that can easily generate between 3 to 5 billion shillings of earnings every year,” Oigara said, adding that it was currently generating less than 10% of that.

LOAN LOSS

KCB, which also operates in Rwanda, Burundi, Tanzania, Uganda and South Sudan, posted a pretax profit of 17.93 billion shillings ($173.82 million), as its net interest income rose 5% on the back of a 14% jump in lending.

It also posted growth in its other businesses including commissions and fees on transactions, Oigara said. The bank recommended an initial dividend of 1.0 shilling per share, unchanged from a year earlier.

The lender boosted its provisions for bad debts to 3 billion shillings during the period, from 0.8 billion a year earlier.

“This big increase in loan provision is mostly due to the impact of day 1 adjustments done during implementation of IFRS 9 last year,” said Lawrence Kimathi, the group’s chief financial officer, referring to new accounting standards.

Non-performing loans dropped to 7.8% of the total loan book, from 8.4% in the same period last year, and well below the industry average of 12.7%, said KCB.

Oigara called on parliament to repeal the cap on commercial lending rates, saying it was hindering private sector credit growth.

“It (rate cap) doesn’t serve a purpose today,” he said.

$1 = 103.1500 Kenyan shillings Writing by Duncan Miriri; Editing by David Evans

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