By HERBLING DAVID, hdavid@ke.nationmedia.com
In Summary
The Capital Markets Authority (CMA) was Thursday left in a tight spot after the National Bank reported a Sh1.15 billion loss without prior warning to investors as required by law.
The bank, which sent a Press statement announcing its
results at midnight on Wednesday, attributed the huge loss to bad loans
that rose by Sh3.2 billion towards the end of the year, leading to a
seven-fold increase in impairment charges.
Companies listed at the Nairobi Securities Exchange
(NSE) are required to warn the public if their full-year profits will
drop by more than a quarter at least 24 hours before announcement of the
results, a rule the National Bank did not adhere to.
The law contemplates that such a warning is issued
through publication of notices in local media of national reach, the
enforcement of which is the CMA’s mandate.
That National Bank managed to continue hoodwinking
investors and the public through a series of pronouncements and Press
statements indicating that all was well only to drop the bombshell of a
huge loss speaks to the quality of the CMA’s regulation.
The annual financial results, which were released
two days after National Bank sent its chief executive, Munir Sheikh
Ahmed, and five top managers on compulsory leave to facilitate an
internal audit, only deepened the mystery surrounding the authenticity
of the lender’s financial health.
National Bank’s earnings were hit by a seven-fold
increase in loan impairment costs that saw provisions to cover for bad
loans hit Sh3.7 billion compared to Sh525 million in December 2014.
The bank’s gross toxic loans grew by nearly
two-thirds to Sh11.7 billion in the period under review, reflecting the
deteriorating quality of its assets.
“Increasing provisions is a prudent practice in
accounting. We have further put elaborate structures in place to manage
the recovery of this position,” said acting managing director Wilfred
Musau.
Reports, however, indicated that the financial
sector regulator, the Central Bank of Kenya, had rejected National
Bank’s version of its performance, insisting on higher provisions for
bad loans and removal of unrealised proceeds of property sales that the
lender had booked in leading to a wipe-out of the profits.
National Bank posted a net profit of Sh2.25 billion
in the nine months ended September 2015, in what Mr Ahmed dubbed as
“the best annual performances by the bank in its 48 years history”.
Mr Ahmed hailed the “transformation” success and
had announced that National Bank planned to venture into South Sudan and
even introduced a Chinese department eyeing trade financing with the
dragon economy.
National Bank had Sh110.6 billion in customer
deposits as at December 2015. The bank’s cost of funds surged 50 per
cent to Sh5.8 billion while net interest income declined 5.9 per cent to
Sh6.3 billion in the period to December 2015.
But the steep rise in loan impairment costs raises
fears that the bank has been suppressing and reclassifying its NPLs
before the coming into office of CBK governor Patrick Njoroge who has
demanded close scrutiny of lenders’ financial statements.
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