Kenya suspends sale of 3 State-owned banks

Kenya has suspended the sale of National Bank, Consolidated Bank and Development Bank – all State-owned – ahead of their planned merger.
“The next steps on privatisation of the banks are to be determined taking into account the decisions regarding the merger. Decision on what is to be privatised will be based on the review results,” Solomon Kitungu, the executive director of the country’s Privatisation Commission told The EastAfrican newspaper.
The country’s competition watchdog said it was aware of the plans to either merge or consolidate the three banks but the authority has not yet received formal application for review.
“The key thing is that they have not presented an application to us maybe they are still negotiating and carrying out due diligence work but it will depend on how they intend to do it. We have to know first if it is a merger because if the three banks are currently controlled by one person, either a natural person or a legal person, then it is not a merger but just a consolidation,” said Kariuki Wang’ombe, director-general of the Competition Authority of Kenya (CAK).
But even as news of the merger of the three state banks reverberates through the investing fraternity, Kenya is also looking for a specialist to probe behaviour by commercial banks that is likely to undermine the rights of consumers in terms of prices and quality of products and services. The consultant will assess the kind of information that the banks give to consumers of banking services and if that information is enough for making rational decisions.
“We are in the process of bringing in a consultant and we expect this study to be finalised in the first quarter of next year,” said Mr Wang’ombe.
The government, through the National Treasury, controls a 22.5 per cent shareholding (63 million shares) in National Bank while the State-owned National Social Security Fund holds 48.06 per cent stake — 134.54 million shares.
Due diligence
In Consolidated Bank of Kenya Ltd (CBKL), the government owns 50.2 per cent equity through the Deposit Protection Fund, and has an 89.3 per cent shareholding in Development Bank of Kenya (DBK) through the Industrial and Commercial Development Corporation (ICDC).
National Bank, CBKL and DBK had been lined up for privatisation as part of a broad parastatal reform programme intended to remove the state from ownership and management of non-strategic commercial enterprises.
The three banks have a combined core capital of Ksh13.17 billion ($125.44 million).
Prior to the merger plans, the Privatisation Commission had completed and submitted detailed proposals for the sale of Consolidated Bank and Development Bank of Kenya to the National Treasury for necessary consideration and approval as required under the Privatisation Act. On the other hand, detailed proposal for NBK was awaiting update of due diligence work undertaken earlier.
State-owned businesses have been blamed for low productivity while drawing upon a large portion of the national budget.
Kenya is keen on lowering the number of banks in the economy, which currently stand at 43 commercial banks with one mortgage company.
A total of 21 small banks control only 8.4 per cent of the banking business, 16 medium banks control 41.7 per cent of the market while six big banks hold a 49.9 per cent market share.
The presence of many lenders is being viewed as one of the factors contributing to the high interest rate regime that is choking private investments.
“We expect mergers to happen and have a reasonable number of banks able to compete effectively and drive down interest rates,” said Henry Rotich, National Treasury Cabinet Secretary.
Some banks such as Trans-National Bank Ltd are already in talks with strategic investors to take up equity stakes.
“We are having discussions with our shareholders while at the same time waiting to see what can arise from mergers. That is the way to go,” said Sammy Langat, chief executive of Trans-National Bank Ltd.
“For the bank, it will not be an issue because we are already in discussions with potential investors and the details will be made public after the shareholders’ approval.”