More consolidation expected in Kenya's banking sector

Kenya boasts more than 40 commercial banks and over 24 microfinance institutions. In the past three years, there has been a wave of mergers and acquisitions in the industry with notable unions such as; Diamond Trust Bank and Habib Bank, I&M and Giro Bank, SBM and Chase Bank, and the ongoing mergers between CBA and NIC Bank, and KCB group and National Bank.

The Director of Strategy at Barclays Bank Kenya Moses Muthui predicts more consolidations in the banking sector driven by the need to create synergies, the shift to digital platforms, and efforts to reduce the high cost of compliance.

Speaking in a panel discussion during the Bulls, Bears, and Whiskey forum, Mr. Muthui said that Kenya is overbanked. The country has one bank for every one million residents compared to South Africa with one bank for every three million residents and Nigeria with one bank for every ten million residents.

“I think Kenya as an economy can be underwritten by fewer banks. We probably need five to six [major] banks that control 60 per cent of the market share and ten to fifteen niche players. The niche players must exist. They serve very specific market segments,” said Mr. Muthui.

The Barclays executive also added that traditional banks could boost their digital business by acquiring or partnering with Fintech firms.

Speaking at the same forum, Dr. Habil Olaka the CEO at Kenya Bankers Association said that it is a good sign that the current consolidations are market driven and not regulator driven.

“We have seen in markets where the regulator comes in and forces consolidation. Some of those banks end up in [unions] that don’t stand the test of time and the entities cannot survive thereafter,” said Dr. Habil.

The CEO of the Bankers association emphasized the need for smaller bankers – which serve very specific markets – to continue running.

“Are the smaller banks necessary or should they be combined into larger banks? I think the banks serve a specific niche of customers. And if consolidation will lead to those customers not having someone to serve them, then we have a problem,” said the top executive at the Bankers lobby group.