NAIROBI (Xinhua) -- More
foreign banks are set to enter Kenya lured by attractive returns on investment
amid mergers and acquisitions, a report shows on Monday.
assessment by Nairobi-based investment firm Cytonn noted that at least two
foreign banks are awaiting to start operations in Kenya in the coming months,
with others seeking entrance following the lifting of a moratorium by Central
Bank in February.
banking sector has amongst the highest return on equity (ROE) in the world, with
listed banks’ ROE standing at 20 percent, attracting foreign investors. Going
forward, we expect to see more foreign banks targeting the Kenyan banking
sector,” said Cytonn.
Bank and Mayfair Bank are the two foreign institution’s set to be licensed to
start operations in the East African nation.
Some of the
foreign institutions have chosen to set up new operations while others are
taking advantage of acquisitions and mergers taking place in the country amid
changing business environment.
In the last
one year, Kenya has witnessed a number of acquisitions in the sector, which
include Giro Commercial Bank being acquired by I&M Holdings while Oriental
Commercial Bank was acquired by Bank M of Tanzania.
On the other
hand, Fidelity Commercial Bank was in the process of being acquired by SBM
Holdings of Mauritius, subject to regulatory approvals in both countries.
Diamond Trust Bank Kenya has already announced plans to acquire Habib Bank
Limited setting the platform for more consolidation, with the acquisition
subject to regulatory approval in both Kenya and Pakistan. These cases of
consolidation in the banking sector will lead to fewer, but larger banks, which
are more stable and can, withstand shocks in the economy,” said Cytonn.
reckoned that consolidation in the sector is going to continue as weaker banks
are acquired by the more stable banks.
is adopting a more prudent banking approach, while key issues such as asset
quality and the regulated loans and deposit pricing framework prevail in this
operating environment,” noted Cytonn.
sector in the country has welcomed the International Financial Reporting
Standard, a new accounting standard that requires banks to increase their loan
there have been a number of regulatory developments in the Kenyan banking sector
that have led to a tough business environment for banks.
Top on the
list is the law capping interest rates on loans, which allows banks to charge
interest at no more than 4 percentage points above the Central Bank Rate (CBR)
which now stands at 10 percent.
Edwin Dande told a media briefing on Monday that the interest rate capping law
has reduced the profitability of the commercial banking sector.
“The law has
forced banks to concentrate on lending to the government which is considered
much less risky as compared to lending to the private sector,” he said.
to Cytonn, banks in Kenya have remained profitable by leveraging on technology
to delivery services to its customers.
industry has already launched a digital payment that enables clients to send up
to 9,999 U.S. dollars from one bank account to another from their mobile phones.