NBK investors’ wait pays off with bonus share issue

The National Bank of Kenya (NBK) is a step away from privatisation after turning a page in its dark past as a poorly run state bank to shake off a pile of accumulated losses and a legacy of bad loans.

It is the first time in over a decade that NBK’s shareholders can finally look forward to a dividend pay out after the bank shrugged off accumulated losses that at one point amounted to Sh5.9 billion.

Although the State-owned bank returned to profitability eight years ago, NBK was barred from paying out dividends until the retained losses had been purged from its books.

But after retaining Sh53 million of its earnings last year compared to an accumulated loss of Sh1.3 billion in 2008, investors and potential suitors are breathing a sigh of relief over the bank’s cleaner balance sheet.

“Whatever we now make in profits, we will have to ask our shareholders how much they want as dividends,” said Reuben Marambii, NBK’s managing director.

NBK recorded Sh2.1 billion in pre-tax profits last year compared to Sh1.7 billion in 2008.

The bank’s earnings were driven by a 13 per cent increase in net interest income which stood at Sh3.3 billion at the end of 2009 compared to Sh2.9 in the previous year.

But remaining prudent even in the face of this windfall, NBK will retain cash to finance growth while it awaits the impending sale of a stake to a strategic investor.

NBK resolved to issue two bonus shares for every five held as opposed to increasing a dividend payout.

A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns.

While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the value of the company but instead allows the firm to retain cash to finance growth.

Mr Marambi says NBK will now focus on an expansion plan that he hopes will see the bank catch up with the rest of the banking sector fraternity.

As NBK wallowed in decades of reckless lending and gross mismanagement, the rest of the banking industry continued to innovate, redefining the banking ball game that NBK will now have to adapt to fast.

Donors in the past, led by the World Bank, have called for the government to reduce its stake in the bank in a move aimed at reducing its influence in the management of NBK.

The privatisation plans, which have been on the cards in the past six years, have been delayed by a controversy over how to fix NBK’s balance sheet.