Central Bank governor Dr Patrick Njoroge. FILE PHOTO | NMG
Summary
- The National Bank of Kenya (NBK) faces imminent collapse if it is not taken over by KCB Group in the proposed merger of the two lenders, Central Bank of Kenya (CBK) Governor Patrick Njoroge has warned.
- Dr Njoroge, while appearing before Parliament Tuesday, said failure to rescue the struggling bank would be disastrous to its 650,000 customers as well as the shareholders of the Nairobi Securities Exchange (NSE)-listed firm.
- KCB Group, Kenya’s biggest bank, has offered to take over the ailing institution through a share swap deal.
The National Bank of Kenya (NBK) faces imminent collapse if it
is not taken over by KCB Group in the proposed merger of the two
lenders, Central Bank of Kenya (CBK) Governor Patrick Njoroge has
warned.
Dr Njoroge, while appearing before Parliament
Tuesday, said failure to rescue the struggling bank would be disastrous
to its 650,000 customers as well as the shareholders of the Nairobi
Securities Exchange (NSE)-listed firm.
KCB Group, Kenya’s biggest bank, has offered to take over the ailing institution through a share swap deal.
“NBK
isn’t a small institution and letting it collapse will be disastrous to
its over 650,000 customers and the financial sector at large,” Dr
Njoroge told the Finance and National Planning Committee of the National
Assembly.
NBK’s core-capital position has deteriorated
from Sh10 billion in 2016 to Sh2 billion as at March this year,
reflecting an 80 percent drop. Dr Njoroge linked the poor performance to
mismanagement, political interference and a poor business model.
NBK, which operates 82 branches countrywide, requires an
injection of at least Sh13 billion to stay afloat and to be in
compliance with statutory requirements.
“The
resuscitation of NBK is urgent and if there is a mis-step it will have a
significant implication in the financial sector,” Dr Njoroge told the
House committee chaired by Kipkelion East MP Joseph Limo.
The
National Social Security Fund (NSSF) and the government, through the
National Treasury, are the principal shareholders of NBK with 48 percent
and 23 percent stakes respectively. Dr Njoroge said he is in support of
the takeover bid by the KCB Group since it is the most viable option to
move the troubled bank to safety.
“This option is best
for shareholders because it strengthens the capital position right
away. The next step will be strengthening the business model so it
becomes a solid bank,” he said.
NBK’s full-year
earnings in 2018 stood at Sh7 million from the Sh410.78 million posted
in 2017. Net earnings in the first quarter of 2019 jumped to Sh106.33
million from a loss of Sh278.54 million over the same period last year.
Loans
and advances to customers dropped by Sh5.22 billion or 10 percent to
Sh45 billion in the first quarter compared to last year’s Sh51.14
billion.
NBK has non-performing loans to the tune of Sh30 billion.
In
2007, the government pumped in about Sh20 billion into the bank, but
the capital injection did not realise much. This was followed by a
bungled rights issue in 2013 in which it had intended to raise Sh13.2
billion, worsening the lender’s financial standing.
Reforms
Defending
KCB’s acquisition of the bank, Dr Njoroge said no investor was willing
to work with NBK and that its problems are the reason why its
shareholders have refused to pump in more money.
“Nobody
wants to work with a weak bank and having seen the management at NBK,
strengthening is unlikely. Leadership is key and the bank needs a team
that can turn around this institution. For this to happen, you do not
need an economist to run the bank, but a banker and less of political
appointments,” he said.
The CBK boss noted that the
reforms at NBK started in 2016 after the problems were discovered,
forcing an audit of its financials, which revealed that its IT system
had been messed up and that the numbers it claimed to have were not
accurate.
The lender’s core capital is significantly in
breach of regulatory capital ratios and therefore constrained in its
ability to lend.
Although its liquidity ratio is above
the minimum requirement of 20 percent, its total capital to total
risk-weighted assets stood at a deficiency of or negative 10.7 percent
as at the end of the first three months of the year.
NBK’s
core capital to total deposit liabilities stood at a negative or
deficiency of 5.8 percent while core capital to total risk weighted
assets stands at negative 8.1 percent.
This could be
having a bearing on the bank’s huge decline in its financial performance
and lack of interest from its customers to invest more money in it.
National Treasury support
“It
should not be forgotten that the Capital Markets Authority (CMA) - the
capital markets regulator - penalised some of the bank’s senior managers
involved in illicit financial dealings,” Dr Njoroge said.
The NSSF and the National Treasury are supporting KCB Group’s takeover bid.
See related story on page 8
Last
week, KCB shareholders also backed the bank’s plan to buy NBK. And on
Monday, the NBK board recommended that shareholders agree to the deal.
The bank will hold its AGM on June 14.
In a circular to
shareholders, NBK said the proposed transaction currently values each
of its shares at either Sh3.78, Sh4 and Sh4.49 based on various
scenarios.
It is expected that NBK will end up with shares equivalent to a 4.59 percent stake in KCB.
Meanwhile, two people yesterday moved to court seeking to stop the proposed acquisition.
Evans
Aseto and John Kiptoo argue that the acquisition is being conducted in
an opaque manner to avoid public scrutiny in a direct contravention of
the Constitution.
They have named CBK and the Competition Authority as interested parties in the case.
They argue that the intended acquisition might lead to massive loss of jobs.
Additional reporting by Sam Kiplagat
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