Kenyan banks will have to merge or be bought out to survive the current operating environment that is hostile to small lenders. According to global rating agency Moody’s, the country is looking at consolidation to reduce the number of banks from the current 42 since only six banks run the show while the other 36 battle for crumbs.

“Six banks (out of 42) controlled around 54 per cent of system assets as of end-2017,” Moodys said in a recent banking report. “We expect consolidation given the large number of banks, with many smaller banks facing challenges to survive.” Small lenders such as Jamii Bora are barely lending, with the bank reducing the size of loans from Sh9.3 billion last year March to Sh7.9 billion in the first three months of this year. The lender has a negative liquidity ratio of 11 per cent, which means it is 31 per cent lower than the Central Bank of Kenya’s (CBK) set mark.

Consolidated Bank needed a Sh500 million boost from the Government this year to stay at 20.2 per cent liquidity, just marginally above the 20 per cent required by CBK. It also stopped lending, reducing facilities from Sh8.7 billion last year to Sh7.8 billion in the first quarter of 2018. National Bank had a liquidity ratio of 29 per cent but that came at a cost since loans reduced by a massive Sh7 billion to cushion its cash position. The Government has appointed a transaction adviser on the privatisation or consolidation of Consolidated Bank – which may be the first to live up to Moody’s prediction.

Reports had also indicated that the country’s biggest lender by assets, Kenya Commercial Bank, had made a bid to acquire National Bank. Moody’s said that lessons from the collapse of three lenders in quick succession would inform CBK’s desire to see more consolidation than let depositors suffer insurmountable losses and disruptions as a result of receivership and liquidation. “Authorities have allowed smaller troubled banks to enter liquidation, receivership and statutory management, (such as) Imperial Bank, Dubai Bank, Chase Bank and Charterhouse Bank,” said the agency. “In these cases, depositors have lost access to their money, with likely losses beyond the deposit insurance guarantee of Sh100,000.” It said the Government was unlikely to allow the larger banks, including KCB, Equity and Cooperative, to go down since they were too big to fail and this would be catastrophic.




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