NCBA to ride on Nedbank's muscle in regional expansion

NCBA Bank has signaled an aggressive East African expansion strategy, fueled by the landmark deal with South Africa’s Nedbank, which is set to acquire a two-thirds stake in the Kenyan lender.

Nedbank has expressed interest to acquire 66 per cent of NCBA Group by way of a tender to shareholders for Sh109.5 billion, and has received commitment from major shareholders who control a 71 per cent stake.

The deal is currently awaiting regulatory approvals and is expected to be concluded by the third quarter of this year.

As NCBA transitions from a Kenyan bank to a subsidiary of one of South Africa’s big four banks, NCBA managing director John Gachora said Nedbank’s strong balance sheet and technical expertise would help the bank scale up in its current markets and also explore new growth opportunities in the region. 

Following the announcement of the acquisition on Wednesday, NCBA’s share price at Nairobi Securities Exchange rose to Sh98.25 on Thursday from Sh89.75 the previous day.

NCBA, which has made major inroads in mobile banking locally through M-Shwari and Fuliza that are offered in partnership with Safaricom, also has operations in Tanzania, Rwanda, Uganda and Cote d’Ivoire but which the bank says needed scaling up both organically and acquisitions.

The bank has been scouting for opportunities in the Democratic Republic of Congo.

“While we are large in Kenya, we remain relatively small in the other markets where we operate, we would certainly want to scale up in these markets and are open to inorganic ways of scaling up.”

“We would also want to explore opportunities in DR Congo and Ethiopia once this deal is concluded,” said Gachora, adding that Nedbank would also use NCBA as a springboard to the Eastern Africa region.” 

“Nedbank intends to use NCBA as their cornerstone investment in East Africa… other than scaling up our operations, we have also talked about looking at opportunities in DR Congo, Ethiopia and any other part of East Africa.

“We are also looking at opportunities to expand our digital banking offering beyond where we are today.”

NCBA finance and strategy director David Abwoga added that the bank would have access to much broader funding options that would enable NCBA to go “farther, deeper and faster at the opportunities…drawing on much richer capabilities”.

Under the proposed terms, NCBA shareholders will receive a 20 per cent cash portion, amounting to Sh21.9 billion, with the remaining 80 per cent settled through the issuance of new Nedbank ordinary shares listed on the Johannesburg Stock Exchange (JSE).

The Kenyatta family and that of Philip Ndegwa are the largest shareholders in NCBA, holding a combined 28 per cent stake. 

Gachora said the bank would retain its NCBA brand and workforce, including management, while Nedbank will appoint directors to the bank’s board. 

“We will certainly have two board members appointed on our board and on the other hand, our shareholders will appoint one board on the Nedbank Group’s board,” he said.

“We do not envision our employees being affected negatively… we see them being affected positively. It creates opportunity for development, training and growth, in the sense that we’ll be an important subsidiary of Nedbank.

“I see that as a positive outcome for our staff and customers.”

Other than a representative office in Nairobi, Nedbank does not have a presence in the East Africa region, which Gachora said would save NCBA from a “painful integration of systems, policies and people… making  it a much easier transaction for our staff and our customers”. 

NCBA also expects to tap into Nedbank’s strength in such areas as corporate and investment banking, wealth management.

It also expects to reciprocate by offering expertise in digital banking, where it has a strong footprint through products such as M-Shwari and Fuliza.

“We are leaders in digital innovation and digital banking. That’s an opportunity for NetBank to take advantage of from their side,” said Gachora.