Kenya’s KCB Group looks to consolidate to bolster growth

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The Chief Executive Officer of KCB Group, Joshua Oigara said the bank is looking to bolster growth by joining a wave of consolidation in the country’s banking industry in the next few years.

In response to a 2016 cap on commercial lending rates and tougher central bank regulations, which followed the collapse of three banks in 2015 to 2016, Kenyan banks have been looking to consolidate.

Speaking to Reuters, Oigara said “the next frontier for growth for us in the market will be inorganic growth because ultimately it is about taking market share. The industry will continue to consolidate”.

To improve the country’s banking sector, the Kenyan government welcomed merger talks between NIC bank and Commercial Bank of Africa in December 2018. Diamond Trust Bank also bought Habib Kenya in 2017.

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. However the cap has made banks more cautious about lending to small enterprises because they say it is more difficult to assess risk.

Oigara revealed that 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. He said “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”.

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

KCB Group, which operates in Uganda, Tanzania, Rwanda, Burundi and South Sudan and is Kenya’s largest bank by assets, expects regulatory approval to buy more than 25 billion shillings ($248.76 million) worth of assets from Imperial Bank.

Oigara noted that the purchase of Imperial Bank, which collapsed in 2015, will help KCB to strengthen its small and medium enterprises banking business, since Imperial had many of such customers.

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