NBK still undercapitalised despite Sh5bn injection

National Bank of Kenya managing director Paul Russo with Edward Gathu, a Gikomba trader (l) when the lender opened the Gikomba Branch on March 10, 2020. DIANA NGILA | NMG 

By VICTOR JUMA
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Summary

• NBK results for the year ended December shows that the lender fell short of the required capital to back its lending and deposit-taking activities.
• This was despite factoring in boosters afforded by the Central Bank of Kenya’s directive allowing lenders to add expected credit loss provisions back to capital.
• NBK core capital to total deposit ratio stood at 7.3 percent as of December, 0.7 percentage points below the minimum requirement of eight percent.

The National Bank of Kenya (NBK) remains in breach of capital adequacy ratios even after receiving a Sh5 billion capital injection from new parent company KCB Group #ticker:KCB in December.

NBK results for the year ended December shows that the lender fell short of the required capital to back its lending and deposit-taking activities.

This was despite factoring in boosters afforded by the Central Bank of Kenya’s directive allowing lenders to add expected credit loss provisions back to capital.

KCB had earlier projected that the Sh5 billion would be enough to stabilise NBK but now says that the subsidiary will be compliant by June after undertaking unspecified balance sheet moves.

“All banking subsidiaries met regulatory capital requirement with the exception of NBK which was below total capital requirement,” KCB said in a statement. 

“This is expected to be addressed within the first half of 2020 through various initiatives at NBK.”

The country’s biggest bank by assets had initially estimated a capital injection of up to Sh7.5 billion, with the actual figure pegged on NBK’s level of success in recovering bad debt.

NBK core capital to total deposit ratio stood at 7.3 percent as of December, 0.7 percentage points below the minimum requirement of eight percent.

Its core capital to total risk weighted assets was 10 percent, 0.5 percentage points lower than the statutory minimum of 10.5 percent.

Total capital to total risk weighted assets stood at 11.7 percent against the set threshold of 14.5 percent, a gap of 2.8 percentage points.

KCB on the other hand met all the capital requirements but at reduced levels compared to those recorded in the prior year.

NBK’s capital inadequacy saw it shrink business by significant margins in the review period.

Its loan book dropped 3.9 percent to Sh45.8 billion while deposits fell 12 percent to Sh86.9 billion.

The bank made a net loss of Sh302.2 million, reversing a Sh7 million net profit a year earlier.

The loss was largely the outcome of loan loss provisions rising 10.7 times to Sh1.9 billion.

The higher provisioning was despite the stock of gross bad debt declining 19.9 percent to Sh25.1 billion.