KCB makes U-turn on keeping NBK after merger

KCB Group #ticker:KCB has retreated from an earlier plan of integrating National Bank of Kenya (NBK) into its operations after the September merger of the two lenders, fearing loss of deposits and customers.

NBK will continue to operate as a stand-alone subsidiary of KCB, a departure from the earlier plan of integrating the operations of the two banks within two years.

Paul Russo, the NBK managing director tapped from KCB to oversee the integration, reckons that the shift in strategy has been informed by the fear of losing business attached to National Bank.

He added that it was not automatic that customers and deposits attached to the 51-year-old NBK would move to KCB.

NBK deposits dropped to Sh82.5 billion in September from Sh91.3 billion in June, a period when the market had knowledge of the merger crafted as rescue deal aimed at pulling the mid-tier lender out of its perennial low liquidity troubles.

KCB says it will inform the Capital Markets Authority (CMA) of the shift in plans to keep NBK as stand-alone subsidiary given that investors had been informed of the integration ahead of the merger. “The two entities have different competencies and propositions. We will go back to the regulator about the model. Closing the brand comes with downsides because it is not automatic all customers will remain,” Mr Russo said in an interview last week.

The NBK acquisition will help KCB increase its share of government banking business since the mid-tier lender enjoys a prime position in securing deposits from the government and its agencies, especially State-owned companies and their employees.

Both banks have traditionally competed for public sector banking business, especially deposits.

The tweaked strategy now offers hope to the 1,356 NBK staff who were fretful of job cuts given that the integration was expected to lead to the closure of some branches.

The Competition Authority of Kenya had only compelled KCB Group to retain at least 90 percent of the employees for one-and-a-half years.

Previous mergers have seen the buying entities cede some of the business acquired through the acquisitions.

Airtel Kenya, for instance, acquired 2.7 million yuMobile customers when it acquired the rival firm in 2015, but lost over 130,000 subscribers months later.

NBK, where the government and the National Social Security Fund (NSSF) had a combined 70 percent stake, has been struggling with mounting bad debts in recent years and has been operating below the statutory minimum capital requirements.

Its core capital stood at Sh993.7 million in September, which was below the statutory minimum of Sh1 billion

KCB sold the takeover as a solution to the crisis at NBK, which has eroded shareholder value of what was previously one of Kenya’s biggest banks.

The combined bank had assets of Sh861 billion in June including Sh114.5 billion from NBK and KCB targets the merged unit to have a balance sheet of Sh1 trillion by the end of 2022.

NBK’s net profit rose 18.5 times to Sh407 million on the back of higher interest income and lower expenses.