The National Bank of Kenya (NBK) has been in rough financial straits in the last few years and it was just a matter of time before collapsing. Its takeover by Kenya’s biggest bank by asset base Kenya Commercial Bank (KCB) came as a respite. As at the time of writing this article, the deal was still under review by various stakeholders and authorities before ratification.
It is not the first time KCB was coming in to rescue a bank. In 2016, it took over as receiver manager of Chase Bank after the latter faced one of the worst bank-runs ever witnessed in Kenya in recent times. It ended its receivership role in August 2018 when Chase Bank was taken over by and rebranded to State Bank of Mauritius (SBM). It then took over the fraud ridden collapsed Imperial Bank.
Here is what you need to know about the KCB takeover of NBK should the current proposals be ratified by parliament, the Central Bank, the Competition Authority of Kenya, and the Capital Markets Authority:
- NBK is currently valued at KES 6.6 billion, according to The Standard.
- The takeover will be through a share swap. KCB will acquire 10 shares of NBK in exchange for every one of KCB. That means every 10 shares of NBK that an investor has will be equal to one KCB share in the new deal. NBK will be delisted from the Nairobi bourse once the swap is finalized.
- KCB will acquire 100 percent of NBK, meaning transfer of all assets, debts, and customers to the former. NBK has a non-performing loan portfolio bigger than KCB’s despite being less than a fifth in size, both in the balance sheet and customer numbers.
- NBK brand would be obsolete, transferring the over KES 100 customer deposits to KCB.
- Both National Social Security Fund (NSSF) and the Government are considerable shareholders in the two banks. The two currently have a combined 23.65 percent shareholding in KCB (govt – 17.53 percent, NSSF – 5.64 percent) and 70.60 percent in NBK (govt – 22.5 percent, NSSF – 48.05 percent).
- NBK will operate under its brand name for a year from the time when the takeover starts.
- The acquisition will boost the asset base of KCB from KES 714.3 billion to about KES 900 billion.
- KCB’s acquisition will move it closer to meeting the requirement of KES 1 trillion asset base demanded by Chinese authorities for opening a representative base in China. KCB plans to buy a bank in Rwanda and another in the Congo to meet this requirement as well as firmly establish itself as a big player on the international scene.
- The preferential share price for NBK stock that would convert it into ordinary stock is yet to be determined. It is currently pegged at KES 5. A lower price for converting the shares would translate to a relatively bigger stake for NSSF and a corresponding decline for the National Treasury, while a higher price will affect the percentage shareholding the other way round in favour of the Treasury. This is a contentious factor at the moment.
Parliamentary committee investigates NBK takeover
National Assembly Finance and National Planning Committee began its review of the takeover bid on Wednesday 15 May, 2019. The main areas being investigated are:
- Valuation of the National Bank of Kenya.
- Interests of the pensioners, taxpayers, and employees of NBK.
- Whether the deal was subjected to public participation as required by law, or if it was a boardroom deal between the two banks in which the government owns significant stakes.
- Why the entire process of the acquisition was single-sourced.
- Whether the government is trying to create a monopoly in the banking sector.
The Committee will present its report within 60 days from today.
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