Equity, KCB buyouts: The making of $15b region’s banking giants

Monday September 16 2019

Equity and KCB are locked in an acquisitions and expansion race across Africa.

Kenya’s two biggest banks, Equity and KCB, are locked in an acquisitions and expansion race that has seen them build an asset base of more than $15 billion spread across 10 African countries. PHOTO | FILE | NATION MEDIA GROUP 

JAMES ANYANZWA
By JAMES ANYANZWA
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Kenya’s two biggest banks, Equity and KCB, are locked in an acquisitions and expansion race that has seen them build an asset base of more than Ksh1.5 trillion ($15 billion) spread across 10 African countries.

The two lenders have in recent months announced a flurry of local and cross-border acquisitions, fuelling their dream of becoming pan-African lenders with geographical spread and financial muscle to compete with their much bigger South and West African rivals.

This past week, Equity Bank announced that it had entered into an agreement to acquire a majority stake in the Commercial Bank of the Congo, commonly known as the Banque Commercial du Congo (BCDC).

BCDC is the second-largest lender in the DRC by assets, estimated at $700 million.

The transaction is expected to be completed in the next three months, subject to shareholder and regulatory approvals.

ACQUISITIONS

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The lender is also in the final stages of an earlier announced acquisition of 6.27 per cent shareholding in Atlas Mara Ltd, the Sub-Saharan Africa financial services holding company founded by former Barclays Plc chief executive Bob Diamond, at an estimated cost of Ksh10.7 billion ($107 million).

Atlas is exiting four markets — Rwanda, Tanzania, Zambia and Mozambique — where Equity does not currently have a presence. The transaction, which is expected to be completed by December, will raise Equity’s presence to nine countries, in addition to Kenya, DRC, Uganda, South Sudan and Ethiopia.

“We’re going to be the largest bank in the Eastern and Central African region, with the possibility of expanding our balance sheet to beyond Ksh1 trillion ($10 billion) by the end of this year,” Equity Bank group chief executive James Mwangi told The EastAfrican in an interview, hinting at ongoing plans to enter another African market.

He says the bank’s plan is to enter new markets through a combination of acquisitions and setting up of fresh operations.

Equity Group’s total assets stood at Ksh638.6 billion ($6.38 billion) as at end of June this year, excluding the BCDC and Atlas Mara acquisitions. The lender declined to give a breakdown of how the acquisitions will raise the asset base to $10 billion in three months, citing regulatory restrictions.

Both Equity and KCB are listed on the Nairobi Securities Exchange, and are cross-listed on neighbouring stock markets.

FINANCIAL MUSCLE

KCB’s total assets currently stand at Ksh746.51 billion ($7.46 billion) as per the lender’s financial statements for the six months to June 30 this year. The lender, which has operations in Tanzania, Uganda, Rwanda, Burundi and South Sudan, is in the final stages of acquiring state-owned National Bank of Kenya through a share swap deal.

The acquisition of NBK, which has an asset base of Ksh114.59 billion ($1.14 billion), and the takeover of Ksh4 billion ($40 million) worth of assets of the collapsed Imperial Bank, will raise KCB’s total asset base to Ksh865.1 billion ($8.65 billion).

“KCB Group is keen on new growth opportunities through mergers and acquisitions in addition to organic growth in its focus to build a Ksh1 trillion asset-strong financial institution by the end of 2022,” said the lender in a statement. “We are excited to see increased momentum towards liberalisation of the key economic sectors taking place in Ethiopia. We are also looking at new markets such as the DRC.”

South Africa’s Standard Bank is the continent’s leading banking group, with operations in 20 sub-Saharan African countries and assets in excess of $145 billion, according to the lender’s 2018 annual report. Ecobank Transnational Inc, another conglomerate with operations in 36 African countries, has a total asset base of $22.6 billion.

The four-largest lenders by asset size in both Uganda and Tanzania hold $7.24 billion assets. The largest Tanzanian bank, CRDB, holds an estimated $2.52 billion worth of assets, followed closely by NMB with an estimated $2.36 billion in assets. In Uganda, Stanbic Bank controls $1.5 billion in assets, followed by Centenary Bank with $866 million.

KCB and Equity have both opened representative offices in Ethiopia, the continent’s second-most populous nation of more than 100 million, as they wait for an expected liberalisation of the market.

In 2017, KCB cancelled a proposal to raise Ksh10 billion ($100 million) of additional capital through a rights issue, and said it wanted to concentrate on consolidating its position in markets it already served such as Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan, a position it now appears to have shifted from. A year earlier, the bank had said it needed to strengthen its financial muscle to fund big infrastructure projects and gain entry into at least 10 African markets by 2020, top on the list being Somalia, Mozambique and the DRC.

'VIABLE INVESTMENT'

Equity Group, which had also shelved its continental expansion in 2016, now says it plans to be in 15 African countries by 2024.

Barely a fortnight ago, Equity hired John Wilson, a former head of financial institutions in-charge of the East and Southern African region at the International Financial Corporation, as the group’s Chief Operating Officer.

Mr Wilson will oversee the operations of the bank’s subsidiaries on the continent.

Equity Bank, with over 14 million customers currently, has 289 branches with operations in Kenya, Uganda, Rwanda, Tanzania, South Sudan and the DRC.

Analysts at Standard Investment Bank (SIB) say Equity Bank’s latest acquisition of BCDC is a viable investment.

“We view the transaction as a positive, given that Equity Bank Congo has been the fastest growing subsidiary of Equity Group Holdings, in both total assets and absolute net profit since acquisition,” SIB said in a market report last week. “Therefore, growing the pie will aid the Group to not only bolster its bottom-line, but also reduce its concentration risk.”

Equity Bank Congo is expected to contribute about 22 per cent of the Group’s total assets after consummation, up from eight per cent, according to SIB. Equity already has operations in DRC through a subsidiary it established by acquiring an 86 per cent stake in Pro Credit Bank. Between 2017 and 2017, it was the seventh-largest bank in the country with assets exceeding $200 million and a customer base of over 170,000. Equity plans to merge the new business with its existing subsidiary in DRC.

BCDC is majority-owned by Belgian entrepreneur George Arthur Forrest and family (66.53 per cent) and the government of the DRC (25.53 per cent), while the remaining 7.94 per cent shares are owned by other minority shareholders. The lender operates 29 branches across the country including in Kinshasa, Goma and Lubumbashi.

“The DRC requires support because it is poorly banked, with financial inclusion at only five per cent. In the four years we have been in the country, we have come to appreciate the risks and opportunities there. If we complete the acquisition of BCDC, we will have more impact in that country,” said Mr Mwangi.

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