GTCO, Access to Buy Tier-3 Kenya Banks to Increase Market Share

Nigerian banks including Guaranty Trust Holding Company (GTCO), Access Bank and United Bank for Africa (UBA) are poised to increase their share of the tough Kenyan Banking sector through acquisition of Tier-3 lenders in the East African country.

Recent bank acquisitions in Kenya have mainly been international banks seeking an entry into the Kenyan market, especially since the moratorium on licenses for new banks is still in place.

Tier 3 Kenyan banks are the likely candidates for mergers and acquisition (M&A) deals going forward as regional banks from Nigeria look to increase market share in Kenya, according to analysts at Tellimer research.

“One way to increase market share in Kenya would be through acquisitions,” Faith Mwangi, Equity Research Analyst at Tellimer said on a July 28 note.

Guaranty Trust Holding Company (GTCO), currently has a market share of 0.8 percent in Kenya which is the largest banking market in East Africa with a GDP of $96 billion according to data compiled by MoneyCentral.

GTCO management has highlighted that the bank intends on increasing regional subsidiaries’ profit before tax PBT contribution from 16 percent in Full Year (FY) 2020, to 25-30 percent over the next three years.

Kenya currently accounts for 2 percent of the bank’s overall PBT. Among GTB’s eight subsidiaries, Kenya comes in second in terms of contribution to PBT, with Ghana claiming the first spot at 15 percent.

In terms of total assets, Kenya accounts for 4%, behind Ghana (7%) and the UK (5%). Management has also highlighted that they are considering acquisitions in Kenya to increase scale.

GTB’s business model focuses on growing its retail banking penetration and payment volumes, superior operating efficiency (its cost/income ratio is the lowest in Nigeria at 42%) and digitalisation.

The bank which recently transformed into a holding company structure, is looking to build subsidiaries in payments, pensions and asset management.

For its payments subsidiary, the group is looking to build a merchant acquiring business and a mobile wallet strategy, with management noting that Kenya is the preferred destination after Nigeria.

“We think this also gives room for GTB to either partner or acquire some Kenyan fintechs,” Mwangi said.

Access Bank, which is one of Nigeria’s largest banks, is also continuing its expansion strategy in East Africa. The bank acquired Transnational Bank in Q1 20, a Tier 3 bank with a market share of 0.2 percent prior to the acquisition.

According to Access Bank management, this is a stepping stone for the bank to scale up in Kenya and achieve a dominant position in the market.

While the bank has not specified a market share target for its Africa acquisitions, it intends to be a strong player and could possibly be looking to attain Tier 1 status in Kenya.

In terms of Access Bank’s 13 subsidiaries, its Kenyan subsidiary contributed a meagre 0.5 percent to the group’s PBT in Q1 21, lagging behind Ghana (13%), UK (12%), DRC (2%), Rwanda (1%) and Zambia (0.6%).

“Nevertheless, given that Access Bank’s Pan-African expansion is based on offering services that will facilitate cross-border payments, correspondent banking and trade finance support – the bank is strategically positioning for the Africa Continental Free Trade Area (AfCFTA) as well as trade flows in Southern and East Africa – we consider Kenya to be strategically important for the bank and expect further expansion activity,” Mwangi said.

Access Bank is likely to consider acquiring a bank with a strong footing in trade finance to achieve its cross-border trade goal, according to Tellimer.

Like GTB, the bank is also pursuing a holdco structure, with new subsidiaries in payments, consumer lending and agency banking, as well as insurance brokerage and bancassurance.

The bank has a strong presence in terms of agency banking in Nigeria with the second largest number of agents at 59,000 (both in-house agents and partnerships with telcos) and a transaction value of NGN8.4tn.

However, the agency model may not be as successful for the bank in Kenya as the market is already controlled by Tier 1 banks, according to Mwangi.

United Bank for Africa (UBA), is another bank with a major Pan-Africa expansion strategy that saw them get into 20 African countries over the past 13 years.

This raised its African subsidiaries’ (ex-Nigeria) PBT contribution to 57 percent in 2020 from 2 percent in 2008 when the Pan-African expansion strategy began.

However, the Kenya unit contributed just 0.4 percent to PBT in 2020, as the subsidiary has failed to achieve scale and improve operating efficiency.

“Given the success UBA has had in contributions from regional units to overall PBT, scaling up its Kenya subsidiary may be in the plans, but not necessarily a current priority. Even then, given that UBA’s business model is skewed towards corporate clients (the segment contributes 66% of total assets) because of its wide reach in Africa, they may still consider the acquisition of a corporate-focused bank in Kenya,” Tellimer’s Mwangi said.