Treasury slashes Consolidated Bank’s Sh1bn loan plea

Consolidated Bank is looking to expand in the SMEs, education, hospitality as well as mortgage and personal lending, said Mr Wachira during a Press briefing last week.

He said that there was strong demand from its customers for financing with a pipeline of over Sh2 billion of approved credit facilities awaiting disbursement.

State-owned Consolidated Bank will only get half of the Sh1 billion it had sought from the Treasury to recapitalise its business.

Finance permanent secretary Joseph Kinyua said the bank would only get Sh500 million out of the Sh1 billion shareholder loan it had asked for, citing increased demand for financing on the Treasury.

“We can only afford half of what they asked for because there are just too many demands on the Treasury right now. In any case, the bank is earmarked for privatisation and should start relying on itself,” he told the Business Daily last Friday in an interview, shortly after signing a Sh5.4 billion loan with the French government for energy projects.

Mr Kinyua said the absence of the privatisation commission was the only reason Consolidated Bank had not been sold, but added that the Treasury had written to Parliament asking for confirmation of members of the commission.

The management of Consolidated Bank had last week announced that it had embarked on a Sh6.3 billion expansion drive, including a recapitalisation of Sh1 billion from the Treasury.

Ndegwa Wachira, the chief executive, had said the bank had opened negotiations with the Treasury for the capital injection to be used in an expansion drive that would mainly target small and medium sized enterprises (SMEs).

The bank said it was positive that the Treasury would extend to it a shareholder loan of at least Sh1 billion.

Mr Wachira could not be reached for comment as we went to press, despite his personal assistant promising to call us once he was available.
The Treasury sent a memo to heads of parastatals last year spelling out the terms and conditions under which it would advance them loans or support them.

The Treasury said it expected to earn dividends from the parastatals and not to pump money into them.
Consolidated Bank has moved from a loss-making institution into the profit zone in the past seven years, raising net its profit nearly 10 times to Sh150 million in 2011 compared to Sh16 million in 2006.

The Treasury had initially rejected the Sh1 billion loan request in toto and communicated the decision in this year’s Budget Policy Statement 2012-13, but later allowed changes to be made before the Budget Estimates went to Parliament.

Getting less cash means the bank will have to cut down on its expansion activities by Sh500 million.

Mr Wachira had indicated that the expansion drive would be financed through a bond, bank loans and equity.

The bank wants to raise its low capital ratios for headroom it can use to grow the loan book and deposits that stood at Sh9.2 billion and Sh12 billion, respectively at the end of last year.

Many banks in which the State has shareholding, such as KCB and National Bank of Kenya, have lent in excess of tens of billions of shillings.
The expansion plan has seen Consolidated Bank seek bond financing.

Already, the Capital Markets Authority has approved a Sh4 billion medium-term note to be issued in two tranches of Sh2 billion each with the proceeds going into long-term financing of the bank’s clients.