CBA eyes Sh4bn in fresh cash call to boost capital

Commercial Bank of Africa (CBA) plans to boost its capital through a cash call for the second year in a row.

The bank which posted a Sh1.8 billion net profit in the first six months of the year said it was looking at raising between Sh3 billion and Sh4 billion.

CBA’s core capital ratios are running thin leaving it with little headroom for growth. The constrained capital follows a rapid growth which saw it elevated to a tier-one bank last year.

“There is currently an exercise being done by our team of forecasting and ascertaining profit flows that will support the core capital; so when the exercise is finished we will be able to know with certainty how much will be raised from the shareholders but in our estimation it is between Sh3 billion and Sh4 billion,” said Chris Pasha, CBA’s group head of marketing and communication.

The bank posted a 50 per cent growth in profit in the first six months compared to a similar period last year after riding on loan book expansion.

In the three months between March and June CBA loan book expanded Sh10 billion, representing 11.6 per cent growth. This saw its core capital to total risk weighted assets drop to 10.95 per cent, only 0.45 per cent above the minimum statutory requirement.

Its customer savings also shot up by Sh8 billion cutting its core capital to deposit ratio to 10.9 per cent, against the mandatory 10.5 per cent.

Owners of a bank are required to invest a shilling for each Sh9.50 they collect from the public. CBA bank is owned by deep-pocketed individuals, estimated to be about 30, prominent among them the Kenyatta family.

Retained earnings are considered as core capital and the bank has adopted a high-dividend retention policy to grow the capital. Last year, it retained Sh2.6 billion having paid out Sh808 million to shareholders as dividend.

Last year, the bank raised Sh2.1 billion through a cash call to the shareholders by selling them 19.2 million new shares at Sh109 each.

It also raised an additional Sh7 billion in debt through a corporate bond. The debt qualifies as tier II capital which is a component of a bank’s total capital whose ratio to total-risk weighted assets is set at a minimum 14.5 per cent. CBA’s total capital ratio is at 17.15 per cent.

CBA has experienced pacey growth following its partnership with Safaricom to launch M-Shwari, a mobile money product that allows users to borrow short-term micro-loans. Last year, it was upgraded by Central Bank of Kenya to a large bank following growth of its market share to 5.12 per cent from 4.4 per cent in 2013.

READ: M-Shwari customers to get up to Sh10,000 medical loans

CBA is the largest privately owned bank in Kenya with a presence in Uganda and Tanzania. CBA has made public its ambition to be present in 16 markets in the next 10years with its immediate attention being to Rwanda and Burundi.

Other markets earmarked by the bank’s management are Ethiopia, South Sudan, Democratic Republic of Congo, Malawi and Mozambique.