Banks set to raise Sh30bn in Dec to meet capital rules

Money Markets

Commercial Bank of Africa Group managing director Isaac Awuondo. The lender is currently raising Sh7 billion through a corporate bond with a greenshoe option of Sh2 billion, to meet the new ratio. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• More than 11 banks have declared intentions to raise additional capital by end of year, with most of them turning to their shareholders.
• The banks had a two-year grace period to comply with the new ratios but seem to be running out of time mainly due to a rapid growth of their businesses.
• The Kenya Bankers Association (KBA) said it would not seek an extension of the compliance period arguing that most of the capital raising being witnessed was meant to fund business growth.

Kenyan banks plan to raise more than Sh30 billion in the course of this month as they rush to meet higher capital requirements coming to effect from January 1.

Research by the Business Daily showed that more than 11 banks have declared intentions to raise additional capital by end of year, with most of them turning to their shareholders.

The banks had a two-year grace period to comply with the new ratios but seem to be running out of time mainly due to a rapid growth of their businesses.

The Kenya Bankers Association (KBA) said it would not seek an extension of the compliance period arguing that most of the capital raising being witnessed was meant to fund business growth.

“The money is not about capital requirements but banks looking at how to fund their future growth,” said KBA’s chief executive Habil Olaka.

Three banks – Commercial Bank of Africa, Consolidated Bank and First Community Bank – have already contravened the capital requirements.

CBA is currently raising Sh7 billion through a corporate bond with a greenshoe option of Sh2 billion, which may see it take in Sh9 billion to meet the new ratio.

READ: CBA targets to raise Sh10bn in corporate bond

First Community Bank plans to raise Sh1.5 billion but has been secretive on how it will raise the amount. The plan, however, has to include capital injection from shareholders of the shariah-compliant bank as its core capital ratios are below those required in January. Core capital is the amount that belongs to shareholders.

Government-owned Consolidated Bank has breached all capital requirements since December last year but has not disclosed any plans to raise additional cash.

The lender has the option of issuing a second tranche of a Sh2 billion bond approved last year. However, a source who declined to be quoted because he is not authorised to speak on behalf of the bank said the lender would not raise debt as this would not solve all its problems while it would increase its financing expenses.

National Bank has the largest appetite for funds, with a planned Sh13 billion rights issue. The cash call, meant to help the lender offset some of its long-standing debts held in preference shares, has received shareholders’ approval but is still awaiting the nod from the Capital Markets Authority (CMA).

“There is enough money in the market and the corporate bonds have a premium to the government yield so you can’t say they are inferior,” said head of fixed income trading at Kestrel Capital, Alex Muiruri.

The indicative 91-day Treasury bill is currently at 8.6 per cent while CBA is offering a return of 12.75 per cent for cash lent to it for a six-year period.

CfC Stanbic is giving a return of 12.5 per cent to investors who lend it a total of Sh4 billion. CfC Stanbic, unlike its peers, is not under pressure to raise the money but is taking the debt for expansion.