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Consolidated Bank upbeat as bond issue closes

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Customers at a Consolidated Bank branch. The bank has over time battled with accumulated losses and narrow capital margins in the competitive industry and is now seeking to raise funds in the capital markets. Photo/File

Customers at a Consolidated Bank branch. The bank has over time battled with accumulated losses and narrow capital margins in the competitive industry and is now seeking to raise funds in the capital markets. Photo/File 



Posted  Thursday, July 19   2012 at  19:53

Consolidated Bank was formed in 1989 when the government took over and merged the management of nine banks that were said to be insolvent.

The core role of the bank was to collect debt from companies and individuals who had taken loans from any of the lenders.

However in 2001, the government licensed the debt collecting entity into a full-fledged bank.

The bank has over time battled with accumulated losses and narrow capital margins in the competitive industry and is now seeking to raise funds in the capital markets.

Head of finance Joseph Njuguna spoke to the Business Daily on the bank’s corporate bond, financial performance and outlook.

The bank is issuing a Sh4 billion corporate bond, which closes today. What will the funds be employed to?

If you check the bank’s growth rate over the past six years, it has been huge. Coming from a loan book of Sh1.6 billion in 2006 to more than Sh9.2 billion as at December of last year. Our deposit base grew from Sh2.5 billion to Sh12 billion in December, that is a compounded annual growth rate of 35 per cent.

But if you check on the capital side, you will realise that the growth has not been as much because the shareholders have not injected funds but we have been generating internal capital through retained earnings because our profitability has also been growing. In 2006, we were generating profits of Sh16 million by December 2011 we were at Sh250 million.

The Sh4 billion is coming to fund accelerated growth. It will be taken in two tranches.

In the first tranche, we are looking for Sh2 billion of which Sh1.75 billion is senior notes and basically all this is money for on lending to customers.

Sh250 million is subordinated so that apart from providing funds for lending, we will also be boosting our tier two capital because as per the prudential guidelines, that money counts towards calculation of your total core capital.

The corporate bond matures after seven years. What advised this period?

What we have seen over time is that with the kind of funds we have, we are only able to give facilities of 36 months, probably at most 48 months, but our customers actually require longer term financing so that they are able to manage their cash flows much easier.

So, essentially, we are looking for long-term funds so that we are able to extend the term that we provide to our customers.

When do you expect to tap the second tranche?

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