KCB plans to raise Sh15bn for business growth

KCB is set to tap the equity and debt markets for Sh15 billion later this year to fund its business growth after getting approval from the regulators.

Only a nod from its shareholders now remains before KCB can roll out the fundraising meant to raise its ability to take in more deposits and advance higher amounts to single borrowers.

“Capital Market Authority and the Central Bank of Kenya have approved to raise additional capital which we intend to do in the second half of the year after getting our shareholders approval”, said KCB managing director Martin Oduor-Otieno.

While releasing the 2009 annual audited results, Mr Oduro-Otieno indicated that KCB recorded a five per cent growth in pre-tax profit to reach Sh6.3 billion from Sh6.0 billion recorded in 2008.

The growth was largely pushed upward by interest income which rose by 23 per cent to Sh14.5 billion from Sh11.8 billion in 2008.

The high interest income growth was fuelled by a 29 per cent growth in loans and advances to Sh120 billion from Sh93.5 billion defying the soft economy which has seen businesses and household cutback on their borrowing to manage cost.

However, the bank operational costs edged upward by 30 per cent to Sh15 billion from Sh12.2 billion while provisions for bad debts declined from Sh2.2 billion to Sh1.5 billion during the period.

Most commercial banks have whittled down lending to cushion themselves against rising indebtedness due to low business sales.

“The year 2009 was difficult for many businesses across the country, region and the globe and we are very pleased with our performance under these conditions”, said Peter Muthoka the bank chairman.

The bank’s appetite for new capital sets the stage for three likely options starting with a rights issue - an invitation to shareholders to buy more shares at a set price based on their current holding in the bank.

The second option would be the issuance of a bond with a long-term credit line from development finance institutions a distant possibility.

Analysts indicate that plans to raise more capital will allow the bank withstand unforeseen shocks locally and in the region.

“The global financial crisis exposed many financial institutions’ capital base and KCB bank may be looking at the need to strengthen its base to give it the ability to withstand any exposure,” said Einstein Kihanda a fund manager with Sanlam.

Mr Kihanda said he expects the bank to prefer debt capital through a corporate bond.

“The recent success of various corporate bonds with investors showing high appetite will inform KCB choice.” Barclays Bank and CFC Stanbic Bank have recently raised money through corporate bonds with each offering Sh5 billion through tranches.