Corporate News
Consolidated Bank building on Koinange street, Nairobi. The Treasury is
set to inject Sh500 million into the bank to boost its capital base.
PHOTO | SALATON NJAU
By VICTOR JUMA, vjuma@ke.nationmedia.com
In Summary
- The proposed funding was revealed in the Treasury’s supplementary budget tabled in Parliament last Thursday.
- It is expected to bring the lender into compliance with Central Bank of Kenya’s minimum capital requirements as well as accelerate growth through additional deposits and an expanded loan book.
The Treasury is set to inject Sh500 million into
Consolidated Bank to boost its capital base, offering a vital lifeline
for the State-owned lender whose regulatory ratios have been stretched
in recent years.
The proposed funding was revealed in the Treasury’s supplementary budget tabled in Parliament last Thursday.
It is expected to bring the lender into compliance
with Central Bank of Kenya’s minimum capital requirements as well as
accelerate growth through additional deposits and an expanded loan book.
The cash injection, however, comes at a time when
CBK is set to raise the minimum requirement on three key capital ratios
by an extra 2.5 percentage points starting January, which could again
put the lender below or on the margins of the new regulatory thresholds.
Its core capital to total deposit liabilities ratio
stood at 5.7 per cent in the period, falling 2.3 per cent below the
minimum regulatory mark.
Core capital to total risk weighted assets was 5.1
per cent reflecting a 2.9 per cent shortfall while total capital to
total risk weighted assets stood at 7.6 per cent or 4.4 per cent below
the minimum threshold.
Consolidated Bank had made the funding request
based on the current CBK capital ratios that it had breached for years,
slowing down its growth in the competitive banking sector where
cash-rich rivals have a bigger market share.
The lender’s core capital stood at Sh706.3 million
in three months to September, falling under the statutory minimum of Sh1
billion and marking the second straight quarterly decline.
A drop below the minimum CBK ratios limits a bank’s
ability to take more customer deposits or lend out more cash without
attracting regulatory sanctions.
The CBK says the new higher ratios are meant to
cushion banks from unforeseen external shocks, giving them more
resilience to withstand macro-economic and cross-border risks.
Operational constraints brought by the capital
shortfall have been reflected in Consolidated’s lending that has
stagnated in the past one year.
Its loan book stood at Sh9.7 billion in September
compared to Sh10.5 billion in June, Sh10.7 billion in March and Sh10.8
billion in December 2013.
The stagnation has led to reduced interest income
and a net loss of Sh154.9 million in the nine months to September,
compared to a net profit of Sh30 million a year earlier.
The Treasury’s new funding of the bank comes after
it raised Sh1.7 billion through a corporate bond in 2012 that had
targeted Sh2 billion.
The lender is yet to issue the remaining Sh2 billion bond for which it had received regulatory approval.
The lender is yet to issue the remaining Sh2 billion bond for which it had received regulatory approval.
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