A National Bank branch in Nyeri town. The lender has put regional expansion bid on hold. PHOTO | FILE
The National Bank of Kenya (NBK) has shelved regional expansion bid to avoid squeezing its prudential ratios although its management says the lender still has a Sh13 billion headroom to grow its local loan book.
The bank said the current headroom of 0.9 per cent in terms of total capital to total risk-weighted assets — which is an indication of the relationship between capital and assets — was equivalent to Sh13 billion in loans and advances given that many other assets on the balance sheet could be expanded without adding risk.
The failure by the Capital Markets Authority (CMA) to approve the plans to inject billions in new capital would however delay the plans to enter the other markets in the region.
Tier II NBK had planned to be a tier-I bank by the end of 2017, but this plan will now be delayed by at least one and a half years. That means this aspect of its strategic plan can only be achieved by 2019.
“We have a headroom to grow our assets by Sh13 billion, but since many of the assets have zero weight we are talking about loans and advances increasing. So we can grow further even with the capital we have now,” said Henry Maosa, NBK’s head of strategy and projects.
Mr Maosa said the company can grow organically exploiting its current ratios and also its net profit this year.
The bank has already made a net profit of Sh2.25 billion in the first nine months of the year. Last year it made a net profit of Sh870.7 million but only paid dividends totalling Sh545 million. In 2013, the company made a net profit of Sh1.1 billion but paid dividends totalling Sh365.7 million.
“We are likely to retain some of the cash from the net profit for this year and that should add to the total capital and help us grow the balance sheet organically. In terms of dividends we have been paying only a few hundreds of millions of shillings,” said Mr Maosa in an interview.
The bank’s director for marketing and corporate affairs Bernadette Ngara said though the management had no idea when the rights issue would be given a CMA go-ahead, the growth strategy was only affected in terms of times lines for tier-I status and regional expansion.
Ms Ngara said there was already a refurbishment of the branches including the headquarters in Nairobi as part of improving the institution’s outlook.
Mr Maosa said the 21.1 per cent liquidity ratio was close to the regulatory threshold of 20 per cent, but it was an indication that the bank had used its resources optimally instead of keeping them idle in cash or cash-equivalents.
“We see ourselves as using our cash optimally because we don’t believe in keeping a lot of idle resources. When you see a lot of unused liquidity, it means that you may not be exploiting the available business opportunities,” said Mr Maosa.
He said the bank can continue lending its cash without straining liquidity through re-allocation of assets in the balance sheet, such as converting a government bond into cash should there be a more profitable business opportunity such as lending customers.
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