KCB offers National Bank a lifeline deal

Kenya Commercial Bank at Kenya Kipande house.

Troubled National Bank of Kenya (NBK) has got a new lifeline, following a proposed 100 per cent acquisition by Kenya Commercial Bank (KCB) Group.

The Government is a major shareholder in the two lenders - indicating the takeover might be as good as a foregone conclusion.

Implications of the takeover include that the NBK brand, weighed down by high indebtedness and legacy problems, would cease to exist while its customers would be absorbed by KCB.

National Bank has nearly Sh100 billion in customer deposits that KCB stands to secure.

NBK has a non-performing loan portfolio bigger than KCB’s despite being less than a fifth in size, both in the balance sheet and customer numbers.

Yesterday’s confirmation about the takeover indicates that the National Treasury has eventually settled on a way to treat some 1.135 billion preferential shares held in NBK jointly with the National Social Security Fund (NSSF).

NBK would have to buy back the preferential shares at a yet-to-be agreed price and then issue ordinary shares at the prevailing market price.

How the preferential shares issued against Sh5.7 billion in shareholder loans that NBK could not repay will be top among the thorny issues standing in the way of any remedial steps to rescue the lender - now valued at a paltry Sh1.5 billion.

Investors in NBK will give up 10 shares for one in KCB Group as part of the delisting of the struggling lender from the Nairobi Securities Exchange.

“Under the Notice of Intention, KCB intends to satisfy the Purchase Consideration through a share swap of one (1) ordinary share of KCB for every ten (10) ordinary shares of the company,” NBK said in a statement.

Only regulatory approvals from the Capital Markets Authority, the Central Bank, and the Competition Authority of Kenya now stand in the way of the acquisition.

KCB Group Chief Executive Joshua Oigara said the takeover would help in expanding the giant lender’s footprint in the East African region while building a robust and financially sustainable organisation.

“The proposed transaction will further consolidate the banking sector in Kenya and will create stronger institutions enabling KCB to play a bigger role in the financial inclusion agenda. The acquisition would accelerate the group’s growth ambitions and enhance value to all stakeholders,” he said.

Conclusion of the transaction would see both the Treasury, currently holding 17.53 per cent, and NSSF (5.64 per cent) - significantly raise their stake in KCB.

But that would pretty much depend on the price of converting the preferential shares into ordinary stock. At the book price of Sh5, Treasury would have increased its stake in NBK from 22.5 per cent to 65.8 per cent (969.3 million shares).

NSSF’s shareholding would fall from the current 48.05 per cent to 26 per cent, in a major reduction on the workers pension scheme’s say at the lender.

A lower price for converting the shares would translate to a relatively bigger stake for NSSF and a corresponding decline for the National Treasury – a factor that has been the main point of contention.

NBK becomes the second major acquisition for KCB which has only recently completed taking over some operations of Imperial Bank, which collapsed in 2015 following a major internally-instigated fraud.

While it has been the ‘sick child’ of the banking sector after announcing a profit warning in an industry where peers are doing well, NBK’s value is in several of its fixed assets, mainly property.

The combined balance sheet size is projected to hit Sh900 billion - cementing KCB’s place as the region’s biggest lender. National Treasury Cabinet Secretary Henry Rotich has been pushing for consolidation in the banking sector.

The move is to build bigger and stronger institutions that can compete rather than the hugely fragmented market where the small players cannot take on the club of big banks.