Picked up as the smaller tier 2 and tier 3 banks have

picked up, as the smaller tier 2 and tier 3 banks have found it difficult to operate in Kenya due to:
i. The implementation of The Banking (Amendment) Act 2015, which saw the capping of interest
chargeable on loans to 4.0% above the Central Bank Rate (CBR). This compressed their net interest
margins, as they were unable to price loans higher for their riskier clients, and yet they have higher
costs of deposits, which consequently saw most of them struggle to retain profitability,
ii. The implementation of the law saw the larger banks venture into the small banks’ n iche markets such
as Small and Medium Enterprises (SMEs) banking, and consequently, most have struggled to operate
on declining top line revenue, leading to increased operational inefficiency, and operating losses,
which has depleted capital,
iii. A tough operating environment caused by an abrasive political climate and prolonged droughts has
made it even more difficult to operate, as it consequently lead to a deterioration in asset quality, and,
iv. The failure of Imperial bank prompted a flight to safety, making it hard for tier 2 and 3 banks to
operate. This has led to acquisition of tier 3 banks such as Habib Bank Kenya by Diamond Trust Bank
(DTBK), and mergers of tier 2 and tier 1 banks, such as the NIC and CBA deal.
Thus, in order to maintain a competitive edge and fast-track their growth, banks have either been acquiring
the smaller counterparts, forming strategic partnerships, or merging together, so as to leverage on the
synergies created to provide an adequate capital base, which will drive long term growth.
The banking sector acquisitions in Kenya over the past 5-years are highlighted in the table below:
Acquirer Bank Acquired
Book
Value at
Acquisition
(Kshs bns)
Transaction
Stake
Transaction
Value (Kshs
bns)
P/Bv
Multiple
Date
CBA Group Jamii Bora Bank 3.4 100.0% 1.4 0.4x 19-Jan*
AfricInvest Azure Prime Bank 21.2 24.2% 5.1 1.0x 19-Jan
CBA Group NIC Group 33.5** 53:47*** Undisclosed N/A 19-Jan*
KCB Group Imperial Bank Unknown Undisclosed Undisclosed N/A 18-Dec

19
SBM Bank Kenya Chase Bank ltd Unknown 75.0% Undisclosed N/A 18-Aug
DTBK Habib Bank Kenya 2.4 100.0% 1.8 0.8x 17-Mar
SBM Holdings Fidelity Commercial Bank 1.8 100.0% 2.8 1.6x 16-Nov
M Bank Oriental Commercial Bank 1.8 51.0% 1.3 1.4x 16-Jun
I&M Holdings Giro Commercial Bank 3 100.0% 5 1.7x 16-Jun
Mwalimu SACCO Equatorial Commercial Bank 1.2 75.0% 2.6 2.3x 15-Mar
Centum K-Rep Bank 2.1 66.0% 2.5 1.8x 14-Jul
GT Bank Fina Bank Group 3.9 70.0% 8.6 3.2x 13-Nov
Average 76.10% 1.6x
* Announcement date
** Book Value as of the announcement date
*** Shareholder swap ratio between CBA and NIC, respectively
Increased consolidation in the sector should see the formation of banks that have an adequate capital base,
which will provide them with the requisite cover to partake in core banking activities, thereby catalyzing
economic growth and development in the country. Furthermore, with an aggregate adequate capital cover,
the banking sector will remain resilient to any internal or external systemic shocks that may affect the sector.