Kenyan Lender Urges Tougher Bank Rules to Force More Deals

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(Bloomberg) -- A Kenyan lender formed out of a takeover last year is urging the central bank to increase safety buffers to drive more takeovers in East Africa’s biggest economy.

Raising minimum capital requirements as much as tenfold to 10 billion shillings ($99 million) will “force marriages” between lenders too afraid of the risks that come with mergers and acquisitions, said NCBA Group Plc Chief Executive Officer John Gachora. With over 40 commercial banks servicing 47 million people, there should be no more than 15 institutions, including specialized banks, he said.

“It starts to force real sizable banks that can compete both on scale, coverage, reach, as well as pricing,” he said in an interview in the capital, Nairobi. “It’s hard to get the banks to play their rightful role if every day all you’re doing is competing on the margins.”

NCBA Group became Kenya’s third-largest bank following the combination of Commercial Bank of Africa Ltd. and NIC Group Plc, setting off at least three other deals in the industry. The central bank and Kenyan lawmakers have resisted efforts from the National Treasury to boost the amount of capital lenders need to set aside for potential shocks since 2015, fearing the rules may squeeze smaller banks and slow lending.

Even increasing core capital levels to 5 billion shillings won’t be enough to strengthen the industry, said Gachora, who is also vice chairman of the banking lobby group. The country’s nine biggest banks account for 85% of the sector’s profit before tax, according to central bank data.

The largest banks can be compelled to “assist” with the recapitalization of smaller institutions, he said. Another option is to get small lenders to merge with financial support from bigger companies, which would resolve challenges of scale, Gachora said.

©2020 Bloomberg L.P.

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