CBA’s regulatory capital falls on fast 3-month growth
Commercial Bank of Africa Centre in Upperhill, Nairobi. FILE | PHOTO | NATION MEDIA GROUP
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With the current loan book, the bank needs to raise a minimum Sh1 billion to be compliant and at least Sh3.5 billion to comply with the new capital requirement which come to effect at the end of the year.
Commercial Bank of Africa’s capital has slipped below the statutory adequacy level following fast growth in the three months to June, a position that requires the lender to raise billions within the next few months.
The bank’s total capital to risk weighted assets, largely made up of loans, stood at 11.14 per cent against the statutory 12 per cent. The ratio is meant to tame the risk appetite of lenders so that they do not over expose themselves.
CBA’s retail business has shot up following introduction of M-Shwari in partnership with Safaricom, a mobile money platform which allows users to save and borrow. In June CBA started allowing M-Shwari customers to put fixed deposits in their phone accounts.
“It is our intention to be always compliant and we are working on it,” said Commercial Bank of Africa managing director Jeremy Ngunze who declined to divulge details of how they intend to raise capital.
The private bank associated with the wealthy Kenyatta family has the option of raising cash from its deep-pocketed shareholders through a rights issue or securing subordinated debt.
With the current loan book, the bank needs to raise a minimum Sh1 billion to be compliant and at least Sh3.5 billion to comply with the new capital requirement which come to effect at the end of the year.
CBA loan book grew by Sh15 billion in the three months to June, a pace faster than previously recorded by the lender which has grown its loans by an average Sh3 billion each quarter in the last two years. Its customers deposits went up by Sh16 billion. Mr Ngunze attributed the fast growth to conclusion of deals that had been in its pipeline.
During launch of M-Shwari, CBA’s management had moved to allay fears that the new business would strain its capital adequacy arguing that its shareholders were deep pocketed and able to fund the growth.
Last year, CBA overtook Equity Bank as the lender with the highest tally of loan accounts buoyed by the growing number of subscribers to M-Shwari. CBA’s loan accounts grew to 897,000 last year up from 89,000 in 2012.
Despite the growth in its core business CBA recorded a 16.2 per cent drop in after tax profit following poor performance by its regional subsidiaries. The bank reported a Sh1.2 billion after tax profit in the year to June compared to Sh1.4 billion in a similar period last year. The bank operates in Tanzania and Uganda, recorded a 22.5 per cent profit growth in Kenya to Sh1.6 billion which was, however, wiped off by the regional business. Mr Ngunze declined to give details of the subsidiaries performance. CBA Uganda started operating last year.
CBA joins First Community and Consolidated Bank in falling below the line. Government owned Consolidated Bank fell below the adequacy levels at the end of last year and saw its loan book shrink as its market aggressiveness was checked.
The Treasury had promised to pump Sh500 million into the bank but has not honoured the promise. It has said it intends to privatise the bank by bringing on board a strategic investor and also offering some of its shares to the public.
