“This may ultimately result in lower funding costs for the combined bank through improved ability to mobilise deposits. It may also increase the lending capacity of the bank to the private sector and government’s focus areas,” said Global Credit Ratings (GCR).
However, GCR a South African rating agency, recently cautioned that despite long-term benefits expected from the merger, there may emerge operational and technical risks associated with combining two banking systems, funding structures and cultures may slow earnings for several years.
“We also anticipate the long-term integration costs to be material, causing a drag on earnings for a two- to three-year period, limiting the positive effect of the merger,” said GRC in separate ratings on the two entities.
CBA group’s nine-month profits to September 2018 fell 16% to US$33.45 million while that of NIC group also dropped by 3.2% to US$32.94 million over the same period.
Successful conclusion of the merger could see the combined bank become the third biggest in Kenya by total assets, and the second biggest bank in Kenya by customer deposits, according to, Global Credit Ratings (GCR).
The transaction, expected to be executed through a share swap, is the first major merger deal in a sector that has continued to witness consolidation in the recent past.