Shareholders tipped to pump funds into KCB

KCB Group shareholders should prepare to pump more capital into the business to comply with new capital regulations and to finance the bank’s rapid regional expansion, financial analysts have said.

A report by stockbroker Kestrel Capital says that the Central Bank of Kenya’s (CBK) push for banks to increase core capital and the planned entry into central and southern Africa will nudge the bank into seeking more funding from shareholders probably through a cash call.
The CBK requires banks to raise capital 2.5 per cent — the so-called capital conservation buffer — over and above normal capital adequacy ratios and has set 2013 as the deadline. The bank’s core capital stood at Sh39.9 billion as at March 31.

The new requirement is meant to strengthen banks. Beyond this rule, KCB’s regional expansion makes the case for a rights issue after 2013, says the Kestrel Capital report.

“We foresee that with anticipated entry into other regional markets after 2014 (Zambia, and Democratic Republic of Congo) and continued growth momentum for the next 18 months, the bank is likely to raise Tier I capital via a rights issue possibly in 2014,” says the report.

The bank is already in Uganda, Tanzania, and South Sudan. The Sh40 billion capital KCB has in the past been prolific at raising money to meet CBK regulations for minimum capital requirements and for expansion of businesses through a series of rights issues and borrowing.

The analysts said that the decision will come down to both cost and the time each option takes to implement.

Mr Francis Mwangi, a research analyst at Standard Investment Bank, said that the choice between equity over debt is usually a choice of cost.

“If you are fairly comfortable with both types of capital, debt would be better because it is easier to arrange and secure,” said Mr Mwangi. Arranging for a loan can take between six months and a year and is easier than a rights issue, subject to a series of regulations, with uncertainty over how long a prospective issuer has to wait for regulatory permission.

KCB has had a series of rights issues with the last one taking place in 2010 where the bank raised Sh12.45 billion out of the targeted Sh15 billion.

Should KCB go for a rights issue, it will be the fourth one since 2004 when it raised Sh2.45 billion and 2008 when it managed to raise Sh5.5 billion.

Since then it has also gone to the debt market. In June last year it was granted a $105 million loan by IFC for its mortgage division and foreign currency lending.