Wednesday, April 15, 2009

Equity buying NBK... What for and how much?


JM has apparently expressed serious interest in NBK as GoK looks for a strategic partner for it. Why would anybody be interested in NBK? From the chart, the following stands out:
  • Ksh34bn customer deposits (primarily GoK parastatals and GoK), but would only be accessible with a full or controlling stake. GoK and NSSF together hold 71% of the bank, but it'd be unusual for GoK to surrender such a huge stake in one go.
  • Branch network: 26 well located and distributed branches would be a real boon. If you were a bank seeking to enter the Kenyan market. Equity has 128 branches throughout the nation and in some places will there definitely be duplication. Can it go against its customer ethos and close some of these to reap cost synergies?
  • And that is that unless you can count in the low cost/income ratio.
  • And unless you count any npl skeletons still rattling within its loan book, its a small bank to swallow.
  • Equity needs 50%+ stake to enjoy the above benefits (I am fairly sure it'd seek to retain the GoK deposits by agreement at least for a few yrs otherwise it'd be a dud). At Ksh31.25 a piece, that would make the stake worth just over Ksh3bn and then you add 10-25% premium to entice GoK.

3 comments:

Joram said...

Hi MainaT. You've raised legitimate concerns. I'm particularly worried about the likely duplication of branches and I wonder what Equity plans to do about it. In the following areas, the Equity and NBK branches are literally meters apart: NHIF Building @ Community, Nairobi; Harambee Avenue, Nairobi; Ongata Rongai and Ruiru. NBK are also putting up a branch in Kiambu thats right next to the Equity.

MainaT said...

Actually the situation is even simpler than that. I don't know of any town where a NBK branch is not duplicating an Equity one

coldtusker said...

Except for EB trying to buy political insurance (GoK & NSSF deposits at stake)... this deal makes little sense for EB.