MPs deny NBK Sh5bn allocation for rights issue

Corporate News

National Bank chief executive Munir Ahmed. PHOTO | DIANA NGILA 

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• The delayed cash call could constrain NBK’s loan book growth and deposit-taking capacity, with one of its capital ratios already below the minimum regulatory requirements.

The Sh13 billion National Bank of Kenya (NBK) rights issue faces further delay after the Treasury’s allocation of Sh4.9 billion to the shareholders cash call was reversed by a parliamentary committee.

The Budget and Appropriations Committee report tabled in Parliament on Tuesday shows that MPs removed the cash provision for NBK’s rights issue in the 2015/16 budget, effectively ruling out the Treasury’s support for the bank.

The move has cast doubt on NBK’s ability to successfully float the cash call in the coming fiscal year unless the Treasury lobbies parliament to reinstate the amount.

The delayed cash call could constrain NBK’s loan book growth and deposit-taking capacity, with one of its capital ratios already below the minimum regulatory requirements.

NBK plans to use part of the Sh13 billion to redeem 1.135 billion preference shares held by the Treasury and the National Social Security Fund (NSSF).

The funds will also support its growth and boost its capital ratios, especially the total capital to total risk weighted assets that in March was below the minimum requirement by 1.6 percentage points to 12.9 per cent.

The Treasury holds a 22.5 per cent stake in NBK, making it the second largest institutional investor after the National Social Security Fund (NSSF) which controls 48.1 per cent shareholding.

Support of the major shareholders is important in guaranteeing success of rights issues, with the Treasury’s lack of commitment having already delayed NBK’s cash call that was first approved by shareholders in 2013.

The bank is yet to get approval from the Capital Markets Authority (CMA) because the anchor shareholders have not confirmed in writing that they will take up their rights.

The budget committee did not give reasons for expunging the Sh4.9 billion, but indicates that the oversight body had met with the Treasury in some of its deliberations, signalling that the government may have given its consent.

The Treasury is mulling over the possibility of merging NBK with Development Bank of Kenya and Consolidated Bank of Kenya—also majority owned by the government— in what could have changed priorities of financing NBK as a standalone institution.

READ: National Bank confirms Treasury push for its merger

NBK will, however, find it tougher to operate without the rights issue proceeds pending the proposed transactions.

The Nairobi Securities Exchange-listed firm said it has resorted to asset sales and suspension of dividend payouts to shore up its capital base in the interim.

The bank has put up for sale 12 branches, in a move that will leave it owning only its headquarters. It expects to raise at least Sh1.2 billion from the sales.