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.
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
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