Nigerian banks seeking to escape the malaise gripping Africa’s biggest economy could find refuge by expanding in Kenya, where the industry is ripe for deals and a contraction might still be avoided, according to Bloomberg. The news outlet reported Director for frontier and sub-Saharan African banks equity research at Renaissance Capital, Mr. Adesoji Solanke, as saying that more expansion in Kenya will also offer Nigerian lenders a reprieve from rules that are far more onerous than what their counterparts in Nairobi have to contend with. He was quoted as saying “Nigerian banks are faced with a very punitive regulatory environment at home, so their thinking is to potentially scale-up their operations out of Nigeria so that those can contribute significantly more to their group revenue and profit.”
Nigerian banks need to hold 27.5per cent of their cash as reserves, six times that of their Kenyan counterparts, while at the same time having to extend 65per cent of their deposits as loans. Kenya has too many banks relative to size of the population, meaning more consolidation is inevitable following at least five takeovers over the past year, Solanke said.
There is a concentration of a few big banks at the top and a long tail of small- and mid-sized firms, he said. “You would likely continue to see international banks trying to find ways to either get into the market by buying one of the banks in the country, or where they do have operations currently in the country, trying to scale-up their existing businesses,” Solanke said. Last month, the Central Bank of Kenya approved Cooperative Bank of Kenya Ltd.’s purchase of 90per cent of Jamii Bora Bank Ltd., now renamed Kingdom Bank Ltd. One of Nigeria’s first tier lenders, Access Bank Plc, earlier this year bought Transnational Bank Ltd. Nigeria’s biggest lender by market capitalization, Guaranty Trust Bank Plc, also operates in Kenya, having acquired Fina Bank Group in 2014.
Renaissance Capital’s top banking stock pick in Nigeria is Guaranty Trust Bank because of the high quality of its earnings, Solanke said. A plan to set up a holding company will allow the lender to offer other financial services, which could position it for even stronger growth. The Lagosbased firm is also splitting its banking division into four separate subsidiaries to oversee Nigeria, West Africa, East Africa and its U.K. unit