Companies

NBK eyes South Sudan entry as 2014 profit drops by 21.7pc

MUNIR

Mr Munir Ahmed, National Bank CEO. He said the bank will raise Sh13 billion, part of which will fund the South Sudan expansion. PHOTO | DIANA NGILA

The National Bank of Kenya (NBK) plans to venture into South Sudan, marking the first cross-border expansion by the lender even as it reported a 21.7 per cent drop in its 2014 net earnings.

Chief executive Munir Ahmed on Wednesday said NBK would set up operations in the neighbouring country as part of plans to widen its presence in the East African market.

“We intend to expand to South Sudan. We would have already done it but were held back by political instability (in the country),” said Mr Ahmed after announcing the bank’s annual results.

NBK’s net profit dropped 21.7 per cent to Sh870.7 million in the year ended December, weighed down by higher operating expenses and a one-off severance pay to retrenched workers.

The bank spent Sh1.1 billion to retrench 190 employees in a cost-cutting drive. Operating expenses, which are grouped in a different account from the retrenchment costs, still increased 12.2 per cent to Sh7.5 billion.

NBK’s loan book which grew by 65.9 per cent to Sh65.6 billion helped generate a 30.9 per cent rise in interest income to Sh10.6 billion.

Its interest expenses increased 54.2 per cent to Sh3.8 billion, reflecting the addition of Sh26.7 billion in customer deposits to a cumulative Sh104.7 billion.

The South Sudan venture will be financed by NBK’s upcoming rights issue that Mr Ahmed said will raise Sh13 billion.

At least Sh6 billion will be used to redeem the preference shares held by the Treasury and National Social Security Fund. The balance, Mr Ahmed said would fund expansion in Kenya and the planned entry into South Sudan which is estimated could cost between Sh455 million and Sh910 million.

The cash call is expected to significantly boost NBK’s ability to lend more and raise deposits by improving its capital ratios that have been squeezed in the past one year.

Its core capital to total deposit liabilities stood at 9.9 per cent in December, staying above the minimum statutory requirement by just 1.9 percentage points.

The total capital to total risk weighted assets was at 13.9 per cent, again beating the minimum regulatory threshold by 1.9 percentage points.

NBK will be joining other Kenyan lenders with operations in South Sudan like KCB and Equity that led the search for growth and geographical diversification opportunities in the regional market.

Subsidiaries of Kenyan banks in South Sudan have emerged as some of the fastest-growing and most profitable in the East African region despite the civil war in that country.

This has been linked to increased uptake of financial services amidst economic growth driven by oil exports.

NBK said it would not pay a dividend for the year ended December and instead proposed a bonus issue of one share for every share held.

The bank will issue 28 million new shares to investors holding a total of 280 million shares, a move that will raise the volume of its outstanding ordinary stock to 308 million units.

The bonus issue will see NBK capitalise Sh140 million from its reserves. The bonus issue in lieu of dividend is seen as the bank’s strategy of preserving cash to stop its capital ratios from deteriorating further as it awaits the rights issue.