NIC seeks Sh4.8bn from World Bank arm

Money Markets

NIC Bank chief executive John Gachora says funds from IFC will enable the bank to increase its dollar loans. PHOTO | FILE 

By John Gachiri, jgachiri@ke.nationmedia.com

In Summary

• A disclosure document released by the International Finance Corporation shows it intends to offer the listed bank $55 million (Sh4.8 billion) in two loans.
• One is a senior loan of $25 million (Sh2.21 billion) and a $30 million (Sh2.65 billion) subordinated loan.
• The IFC said the loans are meant to have the twin effects of giving the bank access to long-term funding for its business.

NIC Bank plans to borrow Sh4.8 billion from the International Finance Corporation (IFC), making the World Bank arm its proposed third funding source.

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A disclosure document released by the private sector lender shows it intends to offer the listed bank $55 million (Sh4.8 billion) in two loans.

One is a senior loan of $25 million (Sh2.21 billion) and a $30 million (Sh2.65 billion) subordinated loan.

The IFC said the loans are meant to have the twin effects of giving the bank access to long-term funding for its business and to help it meet Central Bank of Kenya (CBK) capital requirements.

“The project will allow NIC to grow its SME portfolio and provide this crucial segment of the economy with access to longer-term funding, thereby enabling SMEs to undertake investment projects with more appropriate financing structures,” said the document.

“This will ensure that NIC complies with new regulatory capital requirements that are aimed at improving the overall risk profile of the banking sector.”

As at the end of June, the bank’s capital stood at 12.52 per cent of its total risk weighted assets, which is just 0.52 per cent above CBK’s 12 per cent minimum.

IFC subordinated loan — prioritised lowly in terms of claim to payment than the secured senior debt — can qualify as tier II capital which should boost the bank’s total capital ratios and enable it to lend more.

CBK has also issued fresh guidelines seeking to have all banks raise this ratio to 14.5 per cent by the end of this year. The proposal by the IFC means the bank could raise as much as Sh10 billion this year.

NIC earlier announced that it will be seeking to raise Sh5 billion through a corporate bond and a rights issue.

Shareholders approved the raising of Sh2 billion through a rights issue at an extra-ordinary AGM and directors said they would raise another Sh3 billion through a corporate bond.

READ: NIC opts for rights issue, bond in search of expansion capital

NIC chief executive John Gachora said the decision to seek additional dollar-denominated funding will enable the bank to increase its dollar loans.

“NIC Bank is diversifying its pool of funds to improve on the capital mix between equity and debt as well as between currencies to cater for its growth objectives. The relationship with IFC will provide funding in US dollars to support the bank’s foreign currency asset book,” Mr Gachora said.

Analysts said the combination of a rights and bond issues in Kenya shillings and a dollar loan will lower the bank’s risk of servicing the IFC loan.