NIC Bank injection in Uganda business rises to Sh1.5 billion

NIC Bank has injected an additional Sh376.2 million in its Ugandan subsidiary, raising the cumulative capital investment in the subsidiary to Sh1.5 billion.

The new investment is equivalent to one-third of the Sh1.1 billion the bank used to establish the fully-owned subsidiary in 2012.

“In line with the group’s expansion strategy, NIC Bank injected additional capital of Sh376.2 million into the Ugandan subsidiary to boost their capital ratios and drive business growth,” the Nairobi Securities Exchange-listed firm says in its latest annual report.

The additional investment came after NIC raised a total of Sh7.6 billion in 2014 from debt and equity sources to fund its local and regional expansion plan. The lender raised Sh2.1 billion from a rights issue and Sh5.5 billion from a medium term bond.

The Ugandan subsidiary, which operates two branches, made a net profit equivalent to Sh35.7 million last year compared to Sh20.6 million in 2014.

The unit has, however, accumulated losses of Sh292 million relating to negative earnings in 2012 and 2013, with NIC saying it could use Uganda’s treatment of tax losses to defray its future tax obligations in that market.

Tax losses are a legal means of helping a company to reduce its tax burden in a year when profits are high if it had reported losses in previous years. Uganda allows tax losses to be carried forward for an indefinite period.

Besides the investment in the Ugandan unit, NIC also formed a joint venture with Mercantile Finance Company to offer motor vehicle and equipment leasing services.

The lender took a 50 per cent stake in the venture, NIC Leasing Limited Liability Partnership, for Sh50 million. The investment is seen as a move to deepen its asset finance model.

The twin investments add to NIC’s move in the past few years to launch new operations and increase its shareholding in its various subsidiaries as an overall growth strategy.

Take full ownership

The bank has made cash buyouts of minority interests or by applying for more stocks in rights issues where some of its co-investors did not subscribe to their full allotment.

This saw it, for instance, take full ownership of NIC Securities and raise its stake in the Tanzanian subsidiary from 51 per cent to the current 68.9 per cent.

Analysts at Standard Investment Bank (SIB) said in a statement that NIC plans to more than double its branch network from current 27 branches by close of 2017.

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NIC’s expansion in Tanzania and Uganda is meant to reduce its reliance on the local market that still accounts for the bulk of its earnings.
About 98 per cent of NIC’s Sh4.4 billion net profit in the year ended December — which had grown 8.9 per cent from Sh4.1 billion the year before — was derived from the home market.

The balance came from the subsidiaries in Uganda and Tanzania whose contribution to the consolidated net income stood at Sh94 million.
NIC, however, booked a Sh316.4 million forex loss from translating the foreign units’ assets and liabilities into Kenya shillings in what highlights the currency risks in regional expansion.

The forex loss, which is unrealised, partly contributed to the comprehensive income dropping six per cent to Sh3.8 billion.
SIB noted that NIC is currently trading at a significant discount with a share price of Sh38.75 just under the book value.

The investment bank, however, said that the lender’s increased non-performing loans and a relatively lower dividend payout remain major concerns.
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