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.
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