South Africa’s FirstRand Bank is to acquire a mid-sized Kenyan bank, joining a rush among South African lenders to get a piece of East Africa’s most profitable financial services market.
FirstRand said it has stepped up its pursuit of a Kenyan lender after previously failing to close a deal at the right price.
Foreign banks have been looking to set up operations in Kenya, driven by a desire for a piece of the action in a market where collective industry profits jumped 16.3 percent last year to Sh241.65 billion.
FirstRand opened a Kenya representative office in 2012 and uses the office to hunt for infrastructure deals and project financing.
Now, it is seeking a bank to roll out its full spectrum of services, including retail banking, as it widens the acquisition hunt to include non-banking entities like an insurance firm and an investment bank.
Mary Vilakazi, the chief executive at FirstRand, said the bank was seeking growth through the buyout of a small lender and backed by organic growth instead of buying a top player.
It joins a growing list of South African lenders, including Nedbank and Standard Bank, trying to find new avenues to grow and diversify their regional footprint via buyouts
If First Rand closes a transaction, it will be the latest in Kenya’s banking sector, where a tenfold increase in the minimum core capital requirements for commercial banks to Sh10 billion is expected to trigger deals and tie-ups.
‘The group has consistently commented (on) the record over the past few years that it is interested in establishing a larger presence in Kenya. I can’t comment on specific questions,’ FirstRand said yesterday in a response to the Business Daily.
‘All I can say is that we have indicated we are not only considering acquiring banks,’ added the bank, a pointer it is seeking a larger piece of East Africa’s financial services market.
FirstRand operates Rand Merchant Bank, an investment and corporate banking subsidiary in Nigeria.
FirstRand, which is the second-largest bank in South Africa by market value, sold its Tanzania business in 2022 to Exim Bank of Tanzania after starting operations from scratch in 2011.
It plans to reinvest funds raised from the sale of its UK business, MotoNovo, in strengthening its presence in Africa.
The group decided to sell the business after it was charged heavily with failure to make full commission disclosure to borrowers.
FirstRand earnings contracted five percent to R39.7 billion (Sh309.4 billion) in the year to June.
‘I believe they are keener on an acquisition now due to the smaller banks facing stricter CBK capital rules which may provide FirstRand negotiating power as the smaller banks seek to beef up their capital numbers,’ said Melodie Ndanu, a research analyst with Standard Investment Bank.
‘There is also a slowing South African market to consider and the need to deploy its diversified platform proposition in East Africa as it diversifies its revenue streams and makes a play for cross-border opportunities,’ she added.
South Africa’s slow growth and mature sector are pushing its biggest banks to expand elsewhere.
Kenya’s appeal lies in its gateway role to the East African Community, a fast growing bloc expanding by at least five percent a year.
Nedbank is in the process of completing a 66 percent acquisition of regional listed lender NCBA Bank in a Sh110 billion deal.
It beat South African rival Standard Bank, which operates in Kenya as Stanbic, to the prize.
Absa Group had declared intent to increase its stake in the Kenyan operation to 85 percent from 68.5 percent.
The group’s offer to buy the bank’s shares from other existing shareholders at the Nairobi Securities Exchange (NSE) flopped, with investors offering it an additional 3.5 percent stake, against a target of 16.5 percent, despite its having sweetened the deal with a premium on the share price.
The group has maintained the intention to grow its stake from the new 72 percent to the desired 85 percent.
Standard Group has indicated it’s still in the market to deepen its presence.
Nigeria’s Access bought National Bank of Kenya from KCB Group in a deal that was completed halfway through last year.
Kenya’s move to raise banks’ minimum capital from Sh1 billion in 2024 to Sh10 billion by 2032 is expected to spur further consolidation in the industry.
Relatively solid financial regulation, easy repatriation of dividends and the freely traded shilling add to the attraction.
Nigeria’s second-largest bank by asset base and market capitalisation, Zenith Bank, has also inked an agreement to acquire Kenya’s Paramount Bank.
Entry into Kenya serves as a launchpad for the South and West African banks to the wider East African market, which has higher growth opportunities.
The resource-rich Democratic Republic of Congo has been a good hunting ground for Kenyan banks that have expanded into the country.
‘There must be a willing seller at the right price for us to do any deal. What we will not do is overpay for any asset,’ Ms Vilakazi was quoted in South Africa’s media
‘We have always said we are looking in East Africa. We are looking at other opportunities where we enter new markets, and they might not always be a bank.’