Monday, March 29, 2010

Capitalization in Bank Mergers

Today should see the announcement of a merger between Southern Credit and Equatorial Commercial (ECB) banks.

They are both yet to release their full year results for 2009, (have until Thursday) but this will likely be a loss year for Southern (Kshs. - 145m in 9 months) ahead of the combination of the 32nd (Southern) and 35th (equatorial) ranked banks in Kenya with combined assets of about Kshs. 9.3 billion ($120 million) - but which were not growing as fast as their smaller peers in the competitive Kenyan market with 44 commercial banks.

The Nairobi Star today reports that the reason for the merger as the need for Southern Credit to raise their capital to the Kshs 1 billion mark after a deal with foreign investors had fallen through and this amount will be the combined capital size of both banks. The article further describes this as a takeover of Southern - a bank with structures but no capital by ECB - which is a bank with capital but no structures

Elsewhere, in the Market Whisperer [offline] column of last week’s East African newspaper shoots down the justification behind a market rumour of Equity Bank’s (valued at $787 million) interest in acquiring National Bank of Kenya (valued at $133 million) as two over-capitalized banks who don’t need each other.

It notes that NBK which was restructured by the Kenya Government is in essence still a government banker beholden to government securities which account for majority of its income, rather than traditional lending while Equity is struggling to lend out its huge capital infusion and already has a (much) larger distribution and product range than NBK.


Edwin Abuga said...

What, if I may ask, does thia news mean for the NBK stock price?

pesa tu said...

Yes, banks its about time we stopped having banks with Ksh 5bn balance sheets.The competitive landscape needs a big balance sheet to lend,grow and maintain your market share.
I bet this isnt the last tier II merger

coldtusker said...

@pesatu - It is about quality not size... look at USA... many smaller banks (which lent quality loans) are ok... while its the large banks that needed the bailout...

Dont forget the large banks became a too large to fail scenario...


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