NIC mulls raising capital to meet new statutory ratios

NIC Bank is mulling over raising additional capital during the year as its capital adequacy ratios are stretched, leaving it with little room to grow its loan book.

As at March the lender’s total capital was 12.44 per cent of its total risk weighted assets, just a 0.44 per cent headroom over the statutory minimum of 12 per cent. A higher ratio of 14.5 per cent becomes effective at the end of the year putting pressure on the lender to source for new funds.

“We definitely have to raise Tier II (supplementary) capital but management is still looking at how to go about it,” said a senior executive at the bank.

The bank has the option of issuing a bond or taking subordinated debt which qualifies as Tier II capital. With the same risk weighted assets, the bank will have to raise at least Sh2.5 billion so as to be compliant by year end.

“The best quick approach is to get a line of credit with a private entity,” said Standard Investment Bank head of research Francis Mwangi.

He added that the bank also had the option of reclassifying its assets by reducing those that have a high risk perception such as loans while increasing the ‘riskless’ ones like government securities.
Credit advances by the bank are given different weights depending on how risky they are perceived to be—which is referred to as the total risk weighting.

Issuing of a bond would be time consuming and the lender would be expected to have started engaging fund managers to market it. NIC has previously taken debt from French private equity fund Proparco.

READ: Banks turn to global lenders for cheaper cash

The bank had loaned out Sh78 billion in the Kenyan market as at the end of March up from Sh77.1 billion in December.

NIC plans to recapitalise Sh271 million through a bonus issue of one share for every 10 held, a move that will boost its core capital.

The bank has recorded a fast growth, rising to be the largest mid-sized lender in the country by market share last year. This has, however, come with demands of additional capital. In 2012 the bank raised Sh2 billion from shareholders through a rights issue.

It had a market share of 4.32 per cent at the end of 2012 up from 3.7 per cent a year earlier, which saw it overtake I&M, Commercial Bank of Africa, Citibank and DTB in Central Bank of Kenya annual rankings.