National Bank to shore up capital with Sh1.2bn property sale

Corporate News

National Bank of Kenya chief executive officer Munir Ahmed during a press briefing on June 15, 2015. PHOTO | DIANA NGILA 

By VICTOR JUMA, vjuma@ke.nationmedia.com

Posted  Monday, June 15  2015 at  23:00

In Summary

• The bank’s Sh13 billion rights issue, approved by shareholders in 2013, has not received the endorsement of the Capital Markets Authority (CMA).
• The delay has affected National Bank’s performance, with thinning capital ratios slowing down its lending capacity and expansion plans.
• The lender values its properties, including the head office, at Sh205 million, representing their cost of acquisition.

National Bank of Kenya has suspended payment of dividends and put up for sale buildings housing 12 of its branches as it attempts to raise Sh1.2 billion to shore up its capital base in the wake of the delayed rights issue.

The bank’s Sh13 billion rights issue, approved by shareholders in 2013, has not received the endorsement of the Capital Markets Authority (CMA).

CMA ordinarily requires that a listed company’s anchor shareholders, in this case the Treasury and National Social Security Fund (NSSF), confirm their participation in any cash call for it to give approval.

The delay has affected National Bank’s performance, with thinning capital ratios slowing down its lending capacity and expansion plans.

READ: National Bank risks crisis after cash call delay

National Bank says it has opted to freeze payment of dividends to shareholders and sell 12 of its buildings to overcome the capital shortfall as it waits the proceeds from the rights issue.

“We are waiting for our rights issue … but our shareholders have in the meantime approved the sale of low-earning buildings owned by the bank,” said National Bank’s chief executive Munir Ahmed during a media briefing in Nairobi Monday.

The bank will sell all the branch buildings that it currently owns except its headquarters on Nairobi’s Harambee Avenue.

“The buildings sale will not affect our operations and they account for only 12 per cent of the total branch network. The bank which currently leases 88 per cent of its branch buildings will now be leasing all except the head office,” said Mr Ahmed.

The assets sale is expected to boost National Bank’s profit in the current year ending December. The lender values its properties, including the head office, at Sh205 million, representing their cost of acquisition.

National Bank will earn nearly six times that amount going by the expected proceeds of Sh1.2 billion. Mr Ahmed said that besides raising cash to shore up its capital base, selling the branches will make the bank more efficient in terms of deployment of total assets.

National Bank currently earns an average rental yield of eight per cent from the branches, nearly half the lender’s lowest interest rate of 15.7 per cent currently charged on loans.

“There is no reason for a well-run bank to own buildings. We are in the business of owning financial assets and not real assets,” said Mr Ahmed.

“We will generate more income from financial assets rather than from owning low-earning buildings and this also explains why leading banks in Kenya and around the world prefer to lease their branches and in most cases their head offices.”

He added that the property sale is also in compliance with the Banking Act of Kenya which restricts the amount of real assets a bank is allowed to hold.