BANKS – Kenya bank chief cautions industry on need for consolidation

The number of Kenyan banks needs to shrink by about half in the next three years as the sector battles its “worst crisis of confidence” in two decades, the head of the region’s largest bank has warned.

Joshua Oigara, chief executive of Kenya Commercial Bank, told the Financial Times that he expected the consolidation of east Africa’s largest financial sector from its current 42 banks would happen in an orderly manner.

“I think there are 20 more banks than we need in this industry,” he said in an interview. “I believe that what you’re going to see is a voluntary consolidation of the industry, where players combine because what we see a lot of is not a distinct service being offered in the industry. We see a lot of common services.”

Kenya is one of the most densely served African countries, with its 42 financial institutions competing over a population of 40m people. Nigeria, in contrast, has 22 banks for a population of 180m. Nairobi-listed KCB is Kenya’s largest bank, with assets of $6bn. It also has subsidiaries in Tanzania, Uganda, South Sudan, Rwanda and Burundi.

Analysts have said they expect up to 10 banks to merge or be taken over in the short to medium term. Consolidation might start with the three government-owned banks. Henry Rotich, the finance minister, has echoed Mr Oigara, saying the institutions offer an unnecessary duplication of services.

Confidence in Kenya’s banking industry has been rocked by three institutions being placed in receivership since last June. That was when   Patrick Njoroge   took over as governor of the country’s central bank and introduced a much tighter, rules-based, supervisory regime.

The latest,  Chase Bank , was shut temporarily earlier this month following a run on deposits after it was revealed that some directors were issuing larger unsecured loans to themselves than the bank’s working capital. KCB was appointed manager of Chase last week and branches are due to reopen by tomorrow.

KCB was also given the option to buy a majority stake in the bank, but Mr Oigara said it was “premature” to speculate whether it would exercise that right, let alone how much it might buy, because due diligence on the bank had yet to start.

“We may at the end of the day be interested and have a majority stake, but we don’t have a problem for the bank to go back to its original owners,” he said, declining to say when a decision would be made.

Mr Oigara, who is also chairman of the Kenya Bankers’ Association, said he did not think the sector was in crisis but “weaknesses in governance, oversight of institutions [had] . . . messed up the industry”. He added: “We’re in a crisis of confidence today for the sector. It’s the worst in the last 20 years.”

Last week, the KBA unveiled a new ethics code that it hopes will address corruption and unethical practices and boost confidence.

“The signing and subsequent adoption of the code comes at a time when Kenyans are concerned about the health of the banking industry,” Habil Olaka, KBA chief executive, said at the launch. “KBA members have agreed to work together in order to keep each other become accountable.”