South African banking group FirstRand, owner of First National Bank (FNB) and Rand Merchant Bank, has intensified its search for a mid-sized Kenyan lender to buy, as foreign banks scramble for a slice of Kenya's profitable banking market.

Business Daily reported on Tuesday that the Johannesburg-listed group, which has operated only a representative office in Nairobi since 2012, now wants a full bank that can offer its complete range of services, including retail banking. The group has also widened its search to non-bank targets such as an insurer or an investment bank.

'We will not overpay'

FirstRand chief executive Mary Vilakazi has said the group prefers to buy a smaller lender and grow it rather than pay a premium for one of Kenya's market leaders.

"There must be a willing seller at the right price for us to do any deal," Vilakazi has said, adding that the bank will not overpay for any asset. The group declined to name any target. "All I can say is that we have indicated we are not only considering acquiring banks," it said in a statement quoted by Business Daily.

FirstRand had earlier failed to close a deal at a price it found acceptable, South Africa's BusinessDay reported in September. It plans to channel proceeds from the sale of its UK car finance unit, MotoNovo, into African expansion. Group earnings fell 5 per cent to R39.7 billion (about Sh309 billion) in the year to June.

Capital rules set the stage

Kenya's banking sector posted a 16.3 per cent rise in profits to Sh241.65 billion last year, making it attractive to outsiders. At the same time, the Central Bank of Kenya is raising the minimum core capital for commercial banks tenfold, from Sh1 billion to Sh10 billion by 2032, which is expected to force smaller lenders into mergers or sales.

Standard Investment Bank analyst Melodie Ndanu told Business Daily that the stricter rules could give FirstRand bargaining power over smaller banks, while slowing growth in South Africa is pushing it to look north.

A crowded field

FirstRand is chasing a market where several foreign players have already moved:

  • Nedbank is completing a Sh110 billion purchase of a 66 per cent stake in NCBA
  • Absa raised its stake in Absa Bank Kenya to about 72 per cent after a tender offer for 85 per cent drew limited uptake
  • Nigeria's Access Bank completed its takeover of National Bank of Kenya from KCB Group
  • Nigeria's Zenith Bank has agreed to buy Paramount Bank

Standard Bank, owner of Stanbic, has also said it wants to deepen its Kenyan presence. FirstRand previously ran a bank in Tanzania from 2011 before selling it to Exim Bank of Tanzania in 2022.

Photos: Simon Harriyott via Wikimedia Commons (CC BY 2.0); Chulzm via Wikimedia Commons (CC BY-SA 4.0). Logo: FirstRand. Thumbnail design: HAMASTA MEDIA.