• Lenders should merge or lose their licenses, NIC Bank MD says
  • Failure of smaller companies shaking depositor confidence

NIC Bank Ltd., a Kenyan lender, urged regulators in East Africa’s largest economy to consider forcing banks to combine with each other as a way of strengthening the industry after the collapse of three lenders.

“This is time for arranged marriages” Group Managing Director John Gachora said in an interview in Nairobi on Tuesday. “We should start saying ‘you and you must marry, if you don’t marry we’ll take away your operating license.’”

The $61 billion economy is over-banked, with 42 banks serving more than 40 million people, compared with 22 banks in Nigeria, which has a population of 180 million and gross domestic product that is nine times bigger, according to Cytonn Investments Management Ltd., a Nairobi-based money manager. The nation’s regulators were forced to step in with emergency support to stem depositor panic after the collapse this month of Chase Bank Kenya Ltd.

Capital requirements are too low, particularly with smaller banks that have come under increased pressure from depositors, Gachora said. The collapse of smaller lenders needs to spur more mergers and acquisition because “every time one of them goes down, it shakes the confidence” of the public, he said.

Expensive Venture

Imperial Bank Ltd. was seized by regulators in October amid claims of fraud that company executives deny. In August, Dubai Bank Kenya Ltd. collapsed after it breached daily cash-reserve-ratio requirements.

Non-performing loans as a percentage of total debt granted to customers more than doubled to 11.4 percent at NIC Bank last year, the biggest deterioration among the country’s lenders, Nairobi-based Standard Investment Bank said in a note dated April 14.

Central Bank of Kenya Governor Dr. Patrick Njoroge predicts the market will experience “natural consolidation” that will eventually result in fewer and more resilient lenders.

“It should be forced in my view; it cannot be voluntary because bank consolidation is a very expensive thing to do,” Gachora said.

The lender, which plans to consolidate its own market share regionally remains open to looking at the right opportunities, although it hasn’t yet identified potential target, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE