NBK to wait longer for Sh4bn shareholder loan to boost capital as profits up

National Bank of Kenya (NBK) chief executive Wilfred Musau. file photo | nmg

By BRIAN NGUGI

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Summary

• The bank turned to a shareholder loan following a three-year impasse on a Sh13 billion rights approved by shareholders in mid-2013, but has failed to take off due to differences between NSSF and the Treasury.
• Lower provisions helped NBK boost its after-tax profit by nearly six-fold in the year ended December 31, 2017.
• Net earnings jumped 478.95 per cent to Sh410.7 million in the review period.

National Bank of Kenya (NBK) will have to wait till September this year to close a Sh4.2 billion shareholder loan to shore up its capital.

The bank's capital has remained below regulatory requirements for 25 months.

The mid-sized lender has been seeking the debt funding from its top two shareholders -- the National Social Security Fund (NSSF) and the Treasury -- since June 2016 following the collapse of a planned Sh13 billion rights issue.

“The board of directors notes the reduced capital position of the bank and confirm that the principal shareholders have provided firm commitments to secure new capital within 180 days,” said NBK board in a statement Wednesday.

The NBK’s total capital to total risk-weighted assets ratio stood at 5.4 per cent as at December 2017, which is 9.1 percentage points below the Central Bank of Kenya statutory minimum of 14.5 per cent.

READ: NBK to lay off 150 staff to trim costs - VIDEO

Razor-thin margin

The Nairobi Securities Exchange listed lender first breached the ratio — crucial for the bank to grow its loan book — in March 2016 when it fell short by 1.4 per cent after remaining compliant by a razor-thin margin for several quarters.

“The solid commitment made by our major shareholders to tackle the recapitalisation is an overt approval of the measures taken in the financial year under review to sustain growth.

"The capital injection will unlock and bolster the key pillars of our growth going forward,” added NBK chief executive Wilfred Musau in a statement.

The bank turned to a shareholder loan following a three-year impasse on a Sh13 billion rights approved by shareholders in mid-2013, but has failed to take off due to differences between NSSF and the Treasury.

After-tax profit up

Lower provisions helped NBK boost its after-tax profit by nearly six-fold in the year ended December 31, 2017.

Net earnings jumped 478.95 per cent to Sh410.7 million in the review period.

Net interest income decreased 13.69 per cent to Sh6.7 billion from Sh7.7 billion while the loan book contracted 4.83 per cent to Sh52 billion in the review period.

Non-funded income dropped by 14.99 per cent to Sh2.4 billion, reflecting lower earnings from forex trading as well as fees and commissions.

The 2017 results, made public on Wednesday, have seen the lender restate its 2016 full-year earnings wiping out Sh91.2 million in profit earlier reported last year.

READ: State bank’s liquidity slips further as earnings fall

Accounting method

It linked the restatement to change in accounting method.

The results have seen the lender continue its five-year-long dividend drought, meaning its shareholders will have to wait longer before they begin to reap any returns from their investment.

It's shareholders last received a dividend of Sh0.33 per share in December 2013.