The banking sector is expected to see mergers and acquisitions
(M&A) of third tier lenders in the wake of reduced operational
capital following the rate capping law, Genghis Capital researchers have
projected.
The rate capping law came into effect in
September 2016, limiting interest charges to a maximum of four
percentage points above the prevailing Central Bank Rate, currently
standing at 10 per cent.
The rates capping law shaved
Sh26.3 billion off banks’ lending income in the first six months of the
2017 financial year, setting up the lenders for lower profitability.
“With
rate caps some banks will continue to struggle with capital drain which
will make it even more difficult to operate,” said Genghis Capital in a
new outlook report.
“As a result we might see some tier three banks either being
acquired or merging. For State-owned banks consolidation might be a
reality.”
Experts
note the interest rate controls have eliminated differentiation in the
industry that saw some banks offer loans to riskier borrowers.
With
all lenders boxed in to lend within a narrow band, only the most
efficient are expected to weather the rate caps by combining scale and
cheaper delivery channels.
Some of the merger activity
witnessed in the last two years since the rate capping law came into
force include the sale of third-tier lender Fidelity Commercial Bank to
Mauritian lender SBM Bank, which said then it would pump in Sh1.46
billion.
Kenya has 39 banks, of which eight are classified as tier one, 11 as tier two and 20 as tier three.
No comments :
Post a Comment