Delays by the Treasury in injecting additional funds in Consolidated Bank have seen the capital ratios of the State-owned lender drop to the statutory minimum, barring it from taking any more customer deposits.
As at the end of September, the bank’s core capital to total deposits ratios was at eight per cent, which is the regulatory minimum set by the Central Bank of Kenya (CBK).
Consolidated Bank has been operating on thin capital adequacy ratios which made it turn to its majority shareholder, the Treasury, for a Sh1 billion capital injection.
The bank’s head of marketing and customer service, Leah Waichungo, said: “Plans to obtain the additional capital from the Treasury are at an advanced stage,” although it is not clear for how long the bank will remain constrained from taking deposits.
The Treasury has previously floated plans to privatise the lender through an initial public offering (IPO) or sale to a strategic investor to free it from the need to inject capital to match growth of the institution.
On Thursday the Finance minister, Njeru Githae, said: “Currently we are working on the supplementary budget to see how much we can accommodate them.
By next week we will have completed the supplementary budget.”
Core capital is the permanent shareholders’ equity in a bank and includes paid up capital, retained earnings and 50 per cent of the un-audited after-tax profits.
To ensure a bank does not strain its finances the regulator requires banks to accept deposits up to 12.5 times the shareholders’ input.
A breach of this ratio could see the bank banned by the regulator from collecting more deposits, implementing any expansion or declaring dividends.
In the three months to September the banks customer deposits dropped by Sh11 million to Sh13.21 billion while those from other banks shrunk by half to Sh743 million, saving it from being non-compliant.
The bank attributed the drop to rejection of expensive deposits offered by customers who were looking for high returns during the high interest period.
“The bank opted to use the proceeds of the corporate bond first instead of taking the more expensive deposits from the market.
This is clearly demonstrated by our liquidity which stood at 47 per cent,” said Ms Waichungo.
Consolidated Bank raised Sh1.7 billion in July from a corporate bond issue, which was intended to raise Sh2 billion.
In the nine months to September the bank posted a 22.6 per cent drop in profits to Sh116 million compared to a similar period last year.
Over the last one year its loan book has grown 18.6 per cent to Sh9.98 billion while its deposits have grown to Sh13.2 billion from Sh10.8 billion.
Hopes of the banks privatisation process being completed have been revived following the appointment of a board last month whose absence had stalled the process.
Consolidated Bank was formed in 1989 following the merger of nine insolvent banks in efforts by the government to salvage public deposits.
In 2001 it was converted to a fully-fledged bank and in June this year it wiped off accumulated losses after six years of profit making,
marking its full turn-around.
The clearing of accumulated losses also clears the way for a listing at the Nairobi Securities Exchange, which the bank’s board has already stated to be its preferred method of privatisation.
To maintain its growth momentum the bank, which has previously relied on ploughing back of profits, needed capital injection just as its peers in the industry but its ownership structure has seen it remain in a limbo for over an year.
Other banks, faced with low capital adequacy ratios have turned to their shareholders.