NAIROBI, Kenya / AfricaWire.IO / – Half of Africa’s 20 largest banks are building a multi-billion-shilling war chest to expand in Kenya, racing for a share of one of East Africa’s most profitable financial services markets. The lenders are injecting fresh capital into their Kenyan subsidiaries, seeking stakes in local banks or closing buyout deals. FirstRand, the second-largest lender in Africa, is the latest to declare its intention to make an acquisition in Kenya. It has said it prefers a mid-sized bank.
FirstRand chief executive Mary Vilakazi has said the group is looking in East Africa but will not overpay for any asset. The group opened a representative office in Kenya in 2012 to pursue infrastructure and project finance deals. It is also weighing entry through other financial services, such as investment banking, insurance and fund management. FirstRand joins Standard Bank Group, Nedbank, Zenith, CIB Egypt, Access Bank and Absa Group in scouting for stakes or adding capital.
Kenya’s appeal lies in its role as a gateway to the East African Community, a bloc whose economies are growing by at least 5% a year. The country is also a hub for travel, regional bank headquarters and agricultural exports. Relatively solid financial regulation, easy repatriation of dividends and a freely traded shilling add to its attraction. Over the past five years, Kenyan banks have delivered average returns of 23%, compared with 16% for South African lenders.
Capital rule drives consolidation
Kenya’s plan to raise banks’ minimum core capital from Sh1 billion in 2024 to Sh10 billion by 2032 is expected to spur further consolidation. The Central Bank of Kenya oversees the rule, which originally set a 2029 deadline with annual milestones before the National Treasury extended it in June. About 23 smaller lenders remain below the Sh10 billion mark. Analysts say the shortfall is creating acquisition windows for large African banks.
Shadrack Manyinsa, senior research analyst at Pergamon Investment Bank, said the Kenyan market still provides exceptional returns. That is pushing top African banks, especially South African lenders, to seek growth beyond sluggish home markets. The National Treasury’s plan to sell strategic assets could open further opportunities. The government owns Development Bank of Kenya and Consolidated Bank of Kenya, and holds a 19.7% stake in KCB Group, the country’s largest bank by assets.
Big deals reshape the market
Nedbank, Africa’s fifth-largest lender, completed the acquisition of a 66% stake in NCBA Group in October in a deal valued at about Sh110 billion. Nigeria’s Access Bank bought National Bank of Kenya from KCB Group last year and plans to merge the two lenders. Zenith has agreed to buy Paramount Bank, while Absa has raised its stake in its Kenyan unit to about 72%. Investors from outside Africa, including South Korea, are also deepening ties with the continent.
Still, analysts say Kenya is a hard market to crack. Many continental banks remain Tier III lenders years after entering, including subsidiaries of Bank of Africa, Guaranty Trust Bank, CIB Egypt, UBA and Access Bank. Melodie Ndanu, a research analyst at Standard Investment Bank, said foreign lenders face strong competition from domestic incumbents with deep branch, agent and mobile money networks. Equity Group, Co-operative Bank and KCB lead the market, and buying another large bank would carry a heavy premium.