National Bank managing director Munir Ahmed. PHOTO | FILE
What you need to know:
National Bank’s net profit in the period increased to Sh776.3 million from Sh666.2 million a year earlier, as its loan book doubled to Sh54.7 billion.
The bank's thin capital adequacy margin, however, threatens to curtail its growth in the short term.
The lender’s financial statement shows that the delay in its planned Sh10 billion rights issue is hurting its ability to lend more and take in more deposits.
National Bank posted a 17 per cent jump in net profit in the first half ended June, boosted by increased lending and transaction-based income.
The lender’s net profit in the period increased to Sh776.3 million from Sh666.2 million a year earlier, as its loan book doubled to Sh54.7 billion.
This saw interest income rise by a fifth to Sh4.8 billion, followed by non-interest income that jumped by the largest margin at 40 per cent to Sh1.5 billion.
“We are pleased with these strong first-half results, which are as a result of the operational improvements that we have made across the business and the new businesses and products that we have introduced,” said Munir Ahmed, the bank’s chief executive.
“Our focus on efficiency has also brought the cost-income ratio down further,” he added.
The bank’s cost to income ratio—a measure of efficiency— improved to 73.8 per cent from 75.8 per cent, but still way higher compared to its bigger rivals whose ratio is less than 60 per cent. Operating expenses rose 19 per cent to Sh3.5 billion.
NBK’s thin capital adequacy margin, however, threatens to curtail its growth in the short term. The lender’s financial statement shows that the delay in its planned Sh10 billion rights issue is hurting its ability to lend more and take in more deposits.
The bank expected to have raised the cash by last month, but its application for approval of the cash call by the Capital Markets Authority has delayed the issue.
This has constrained its core lending business besides derailing the restructuring plans of the bank that is 48 per cent owned by NSSF and 22 per cent by the National Treasury.
NBK’s loan book stood at Sh54.7 billion in June, having grown from Sh47.1 billion in March and Sh39.5 billion in December. Its customer deposits stood at Sh91.2 billion, rising from Sh81.7 billion and Sh77.9 billion in the same period.
The bank’s core capital deteriorated to Sh9.9 billion in June, down from Sh10.4 billion in March.
This saw its core capital to total deposit ratio decline to 10.9 per cent from 12.3 per cent in the same period, staying above the regulatory limit by 0.4 percentage points.
Its total capital to total risk-weighted assets (loans) ratio in the same period also deteriorated to 14.9 per cent, being 0.4 percentage points higher than the minimum requirement.
The bank now expects to conclude the delayed rights issue within the next three months, raising cash that will ease its capital adequacy crisis. It is expected to offer a discount on its current share price of Sh28 which has gained 30 per cent in the past year.
The statutory limits used by NBK are the higher ones set by the Central Bank of Kenya and which are to be complied with by December.
Until then, banks could use the current lower capital buffer of eight per cent for deposits and from 12 per cent for loans.
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