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Nigerian Banks Seen Adding Fuel to Kenya’s Deal-Making Frenzy - BLOOMBERG

SEPTEMBER 15, 2020

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  •  Kenya’s banking industry to see more consolidation: RenCap
  •  Nigerian lenders are faced with punitive regulations at home

Nigerian banks seeking to escape the malaise gripping Africa’s biggest economy could find refuge by expanding in Kenya, where the industry is ripe for deals and a contraction might still be avoided.

It will also offer lenders from Lagos a reprieve from rules that are far more onerous than what their counterparts in Nairobi have to contend with, said Adesoji Solanke, director for frontier and sub-Saharan African banks equity research at Renaissance Capital.

“Nigerian banks are faced with a very punitive regulatory environment at home, so their thinking is to potentially scale-up their operations out of Nigeria so that those can contribute significantly more to their group revenue and profit,” he said in an interview. Nigerian banks need to hold 27.5% of their cash as reserves, six times that of their Kenyan counterparts, while at the same time having to extend 65% of their deposits as loans.

Kenya has too many banks relative to size of the population, meaning more consolidation is inevitable following at least five takeovers over the past year, Solanke said. There is a concentration of a few big banks at the top and a long tail of small- and mid-sized firms, he said.

“You would likely continue to see international banks trying to find ways to either get into the market by buying one of the banks in the country, or where they do have operations currently in the country, trying to scale-up their existing businesses,” Solanke said.

Kenyan Deals

Nigeria’s Guaranty Trust Bank Plc, the West African nation’s biggest lender by market capitalization, also operates in Kenya, having acquired Fina Bank Group in 2014.

RenCap’s Picks

  • Renaissance Capital’s top banking stock pick in Nigeria is Guaranty Trust Bank because of the high quality of its earnings, Solanke said.
    • A plan to set up a holding company will allow the lender to offer other financial services, which could position it for even stronger growth. The Lagos-based firm is also splitting its banking division into four separate subsidiaries to oversee Nigeria, West Africa, East Africa and its U.K. unit
  • In Kenya, Equity Group Holdings Plc emerges top as the lender is highly liquid and well capitalized.
    • “They have also made certain decisions that show very clear thinking on capital allocation during the crisis,” Solanke said.
    • This includes the cancellation of the acquisition of Atlas Mara Ltd. banking businesses in Rwanda, Tanzania, Zambia and Mozambique, scrapping the 2019 dividend and reducing the acquisition cost for a stake in a lender in the Democratic Republic of Congo by 10%.

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