FILE PHOTO: Customers wait to be served in the banking hall at the Kenya Commercial Bank, Kencom branch in Nairobi

Kenyan bank KCB looks to M&A deals for growth -CEO

By Duncan Miriri

NAIROBI (Reuters) - KCB Group, Kenya's biggest bank by assets, is looking to bolster growth by joining a wave of consolidation in the country's banking industry in the next few years, its chief executive said on Monday.

Kenyan banks are moving to consolidate in response to a 2016 cap on commercial lending rates and tougher central bank regulations which followed the collapse of three banks in 2015-2016.

"The next frontier for growth for us in the market will be inorganic growth because ultimately it is about taking market share," Joshua Oigara told Reuters in an interview without giving details.

"The industry will continue to consolidate."

The government, keen on strengthening the country's banking sector, in December welcomed merger talks between NIC bank and Commercial Bank of Africa. In 2017, Diamond Trust Bank bought Habib Kenya.

Consolidation has been spurred partly by the government's introduction of the cap on commercial lending rates in 2016, designed to help small businesses access money at affordable rates. But the cap has made banks more cautious about lending to small enterprises because they say it is more difficult to assess risk.

Oigara said bankers were still engaging with lawmakers on the future of the rate cap, which has led to a steep drop in private sector credit growth as banks cut credit to small borrowers deemed too risky.

"The best model has to be risk-based pricing on the customer's profile, so in the long run we have to remove the cap," Oigara said.

Lawmakers blocked an attempt by Finance Minister Henry Rotich to repeal the cap last year, arguing that banks could not be trusted not to charge customers high rates.

KCB, which also operates in Uganda, Tanzania, Rwanda, Burundi and South Sudan, expects regulatory approval to buy more than 25 billion shillings ($248.76 million) worth of assets from Imperial Bank, which collapsed in 2015. The price of the assets has not been disclosed.

This purchase will help KCB to strengthen its small and medium enterprises banking business, since Imperial had many such customers, Oigara said.

Oigara, who joined KCB in 2013 after a stint as finance chief at Bamburi Cement, said the group's return on equity, a measure of profitability, was set to climb towards 24 percent after dropping to 20 percent from 25-27 percent in the wake of the rate cap.

He said the recovery was mainly due to deals done via mobile lending services like KCB M-Pesa, a partnership with Safaricom, which owns the M-Pesa platform.

Kenya became a global pioneer of mobile phone financial services in 2007 when M-Pesa, a money transfer service was started by telecoms operator Safaricom. The technology has evolved to allow users to borrow short-term loans from local lenders at the touch of a few buttons on their mobiles.

The boom in mobile phone lending has also been driven by demand from small traders locked out of normal bank loans by the rate cap, Oigara said.

"We expect our non-funded (fee) income to reach 40 percent (of total) by 2020. Today it is around 33 percent," he said.

The bank lends out 300 million shillings daily on the KCB M-Pesa platform, about half of the 600-700 million shillings lent out by all banks daily on such platforms. Mobile phone loans are usually for 30 days.

"Those products are growing dramatically," he said.

($1 = 100.5000 Kenyan shillings)

(Editing by Jane Merriman)

2019-01-28 14:46:19

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