Barclays Kenya edges closer to capital limit for new loans

Barclays Bank offices in Nairobi. The bank reported a 10.2 per cent fall in net profit. Photo/FILE  

In Summary

• Barclays’ ratio of capital to total risk weighted assets has shrunk to 15.4 per cent, just 0.9 per cent above the statutory minimum of 14.5 per cent
• This is compared to its peers, such as Equity Bank which has a safety margin of 8.50 per cent in its ratio of capital to total risk weighted assets, KCB has 5.20 per cent, Cooperative Bank 4.70 per cent and Standard Chartered has 4.50 per cent
• The ratio measures the extent to which capital cushions an institution against default on its loans

By GEOFFREY IRUNGU
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Barclays Bank of Kenya could be forced to raise new capital or scale down lending to stay within regulatory ratios, the lender’s financial statements for up to the end of September have shown.

Ranked among Kenya’s top five commercial banks by assets and profitability, Barclays’ ratio of capital to total risk weighted assets has shrunk to 15.4 per cent, just 0.9 per cent above the statutory minimum of 14.5 per cent.

This is compared to its peers, such as Equity Bank which has a safety margin of 8.50 per cent in its ratio of capital to total risk weighted assets, KCB has 5.20 per cent, Cooperative Bank 4.70 per cent and Standard Chartered has 4.50 per cent.

The ratio measures the extent to which capital cushions an institution against default on its loans.

Barclays has the options of raising money from its parent firm as it has done before, capitalising some of its reserves, raising cash from the local bonds market or floating a rights share issue to shareholders.

“I think Barclays has no problem raising capital,” said Alexander Muiruri, a bond dealer at African Alliance Investment Bank in Nairobi.

Barclays last week reported a 10.2 per cent fall in net profit in the nine months to September compared to the same period last year.

Mr Muiruri said several commercial banks, besides Barclays, might need more capital by mid next year when the new prudential requirements become effective and also to meet Basel III requirements, which requires increased cushion for operational, marketing and credit risks.

The Central Bank of Kenya has put in place new prudential requirements raising the ratio of total capital to total risk-weighted assets by an extra 2.5 percentage points to 14.5 per cent in order to provide the extra cushion in times of unexpected shocks.

John Kamunya, a senior investment analyst at EmExea Consulting that specialises in business consulting, said that Barclays would not necessarily have to raise cash immediately, but can take the option of considerably slowing down lending in order to be within statutory margins.

“What we might see is some freeze in lending as long as they are within the requirements. In the long term, however, it has to raise capital to realise bigger business,” said Mr Kamunya.

Mr Kamunya said a rights issue would be the cheapest form of capital for the bank, given that it already has outstanding bonds and may want to avoid accumulating new loans.

Mr Kamunya said the ratios had been strained by the fact that the total risk-weighted assets had increased between March and September by 48 per cent to Sh190 billion at a time when total capital stagnated at Sh29.2 billion.

“We cannot tell exactly what happened here. There seems to be a change in computation of the risk weighted assets since there was only a small change in outstanding loans and advances. The risk assessment is somehow subjective, so I cannot tell for sure,” said Mr Kamunya.

For the foreign banks, shareholders loans are a major option in getting new financing for capital.

However, changes in the tax law in Kenya in 2010 made that option less attractive as repayment of the loans must be pegged to the Treasury bills.