Inside the Equity-KCB supremacy war for DR Congo market

In November 2020, when the Financial Standard had an interview with former KCB Chief Executive Joshua Oigara, the lender was on the verge of acquiring two banks in Rwanda and Tanzania.

With the acquisition of Atlas Mara’s African Banking Corporation Tanzania (BancABC Tanzania) and Banque Populaire du Rwanda, KCB’s assets would cross the Sh1 trillion mark, a milestone in the East Africa region.

“There is not a single other organisation in our market that has reached a trillion shillings, except the government, in terms of assets,” said Mr Oigara in the interview.

But Equity Bank pulled a fast one on KCB.

A few days before Christmas, Equity announced that it had acquired Banque Commercial Du Congo (BCDC), jumping ahead of KCB to become the first bank in the region to be valued at over Sh1 trillion.

“We are delighted to witness this milestone that has shattered the psychological barrier of a trillion-shilling balance sheet,” said Equity Group Chief Executive James Mwangi.

It would take some time before KCB, listed on the Nairobi Securities Exchange, completed the acquisition of Banque Populaire du Rwanda.

This saw its assets grow by 15 per cent to Sh1.12 trillion by September 2021.

However, KCB’s acquisition of BancABC was thwarted by Tanzanian authorities who, insiders say, deliberately dragged their feet in approving the transaction.

Meanwhile, Equity continued to stretch its lead. Its assets grew astronomically, overtaking KCB as the most profitable bank as well.

Equity’s growth was boosted in a big way by its activities in Congo, a 90-million people market that is rich in minerals and arable land. To have a fighting chance, KCB had to quickly make a foray into the lucrative market.

Mr Oigara, who has since been replaced by Paul Russo, had even offered to take this writer to DR Congo so that he could write “objectively” about the country that has been associated with civil strife.

In his statement in the lender’s annual report for 2021, he talked of the company’s intention to expand its regional footprint, adding that they were looking towards an entry into the DRC.

“We believe the market presents huge untapped potential as well as immense trade opportunities that have been presented by its admission to the East African Community (EAC),” said Mr Oigara.

Seamless trade

At the time, KCB had a presence in all the other six EAC countries, a situation that enabled them “to facilitate seamless trade and transactions across the borders”.

Last week, KCB finally made its entry into the DRC. The bank announced on Tuesday that it had entered into an agreement with shareholders of DRC-based lender Trust Merchant Bank (TMB) to acquire a majority stake.

The deal will expand KCB’s asset base to Sh1.26 trillion, just Sh10 billion shy of Equity Bank’s Sh1.27 trillion by end of March this year.

KCB had a total of 197 branches by March in Tanzania, South Sudan, Rwanda and Uganda, where it has employed 2,007 employees.

TMB has over 110 branches and numerous agency banking outlets spread across DRC.

Once completed, the acquisition will complement KCB Group’s regional footprint with an asset base of Sh1.5 trillion and is expected to strengthen the group’s retail and corporate banking franchises.

KCB Group Chairman Andrew Kairu said the acquisition is aligned with the bank’s strategic focus of scaling up its regional presence.

“It gives us strong headroom to accelerate our growth ambitions to deliver better value for our shareholders and to bolster the push for deeper financial inclusion and social and economic transformation in Africa and beyond,” he said.

The expansion opens up yet another battlefield between KCB and its main competitor Equity.

KCB also acquired the National Bank of Kenya in an expansion spree that has characterised competition among Kenya’s top lenders.

The TMB transaction is expected to close by the end of the third quarter of this year, subject to regulatory, shareholder and other approvals.

This will see KCB acquire 85 per cent of the shares in TMB, while the existing shareholders will continue to hold the balance for a period of not less than two years, after which KCB will acquire their shares.

KCB will pay a cash consideration for the shares based on the net asset value of TMB at the completion of the proposed transaction, and using a price to book multiple of 1.49.

TMB, a public company limited by shares, is one of DRC’s largest banks with $1.5 (Sh178.2) billion in total assets. It has a strong offering in retail, SME, corporate and digital banking channels.