Will State give up National Bank shares?

 

The Treasury is in dire need of the bond money to lift it from a cash crunch that had seen it suspend procurement. Photo/FILE 

 

By Jaindi Kisero, jkisero@ke.nationmedia.com

In Summary

• Currently, the government which owns 79 per cent of preference shares takes 79 per cent of the dividend cash distribution.

As we went to press, it was still not clear whether the National Treasury was going to support the proposal to clean up the balance sheet of the National Bank by exterminating the category of shares on its books known in jargon as preference shares.

 

I will explain what they are and how they came about later. But if you own shares in this bank, the reason you have not been earning a good dividend is as a result of these preference shares.

Currently, the government which owns 79 per cent of these preference shares takes 79 per cent of the dividend cash distribution. The ordinary shareholder of the bank always has a raw deal.

Me thinks this proposal makes a great deal of sense especially if we want to take this key State- controlled bank to the next level in terms of growth.

National Bank occupies a special place in the history of banking in this country. It was established way back in 1968. In those days, the “Africanisation” policy of developing institutions to promote the entry of Africans in commerce and business was very high on the agenda of the government.

Over the years, the policy changed especially after we embraced the Washington Consensus. We started talking about privatisation- fiscal discipline, liberalisation- and about rolling back the frontiers of the state.

In the process, we forgot that some of these institutions were deliberately created to play a developmental role in the local economy.

It is not too late to go back to where we started. We know that no country has developed without first creating a base of strong local institutions in key sectors of the economy such as manufacturing, financial sector, agriculture, trade and commerce.

Fifteen years ago, our local banking sector was dominated by foreign controlled banks. Today, the first two top banks, Kenya Commercial Bank and Equity Bank are locally-owned.

If you count the ten top banks in the country a far greater majority will be local institutions.

National Bank itself is ranked 11th out of 44 banks operating in Kenya with a market share index of 3.3 per cent. It is categorised in the peer group of medium-sized banks with a market share ranging from one to five per cent.

How did the government come to own such a large chunk of preference shares? Following a run on the bank in 1988, the government and the National Social Security Fund came up with a rescue plan for the bank which involved pumping shareholder loans into the bank.

In 2003, these shareholder loans were converted to preference shares structured with equity features so as to enable the bank to maintain adequate core capital as required by the Central Bank of Kenya.

The upshot was a very complex share capital structure. The government owns 22 per cent of ordinary shares and 79 per cent of preference shares.

The NSSF owns 48 per cent of ordinary shares and 21 per cent of preference shares.