Treasury rejects Consolidated Bank’s bid for capital boost
Customers at a Consolidated Bank branch. The bank had asked for Sh1 billion recapitalisation cash to be factored in the 2012/13 national budget estimates, but the request was part of the Sh379 billion applications that the Treasury turned down. Photo/File
The Treasury has turned down a Sh1 billion recapitalisation cash call for the state-owned Consolidated Bank, sending the lenders’ management back to the drawing board as it seeks money to support growth of customer deposits and the loan book.
Consolidated Bank had asked for the cash to be factored in the 2012/13 national budget estimates, but the request was part of the Sh379 billion applications that the Treasury turned down.
Among the options that the bank is now looking at is the issuance of a corporate bond, which has been on hold since late last year due to high interest rates.
“We were intending to use it to increase our capital so as to enable us raise our capacity to give more loans and take more deposits,” the bank’s financial director Japheth Kisilu told the Business Daily.
Additional capital for Consolidated Bank is seen as the best way to boost growth of the lender, which has lagged behind its privately owned peers.
Plans to secure a strategic partner to recapitalise the bank or sell the lender to the public have remained in abeyance in the past five years.
Mr Kisilu said the Treasury had not communicated officially on cancellation of the loan. “We will sit down and discuss alternatives for funding. The corporate bond we had planned to issue is one alternative,” he said.
The Treasury turned down requests for funding amounting to Sh379 billion this year. They would have swelled the national Budget to Sh1.8 trillion, 60 per cent above this year’s total expenditure.
The disclosure by the Treasury for unmet funding requests has been made mandatory in the Fiscal Management Act 2009.
Traditionally, the Treasury did not disclose items it left out of the final Budget Estimates, since it was not a constitutional requirement.
“The pending expenditures on the BPS (Budget Policy Statement) are those that could not be met this financial year because ministries and departments often ask for more than the Treasury can afford. We have to disclose the requests in line with the Fiscal Management Act,” said the deputy director of economic affairs at the Treasury, Mr Henry Rotich, in an earlier interview.
Consolidated Bank said last December that it was planning a Sh4 billion bond to be issued in tranches once interest rates were low and stable.
The benchmark Central Bank Rate currently stands at 18 per cent, having been retained at that level for the past five consecutive sittings of the Monetary Policy Committee to control inflationary pressures and maintain stability of the shilling exchange rate.
The current yields on corporate bonds range between 13 and 15 per cent, broadly reflecting the lower prices of Treasury bonds – which are affected by the high interest rate regime that began late last year.
Core capital
Consolidated Bank has nearly touched the limit on the core capital to deposit ratio, which stands at 8.6 per cent, against a requirement of eight per cent on the basis of last year’s financial results.
This gives the bank a headroom of only 0.6 per cent. The core capital to risk-weighted assets ratio is at 10.9 per cent, giving a gap of 2.9 per cent.
There have been long-standing plans to privatise the financial institution – which is 51 per cent owned by the Deposit Protection Fund of the Central Bank of Kenya, while the rest is held by parastatals.
The investment secretary, Ms Esther Koimett, told the Business Daily that privatisation of companies including Consolidated Bank had been held back by bureaucracy. For the bank, she said that the request for more capital did not mean that the privatisation route was off track but was only delayed.
The sale of shares by the government would open the bank to more shareholders from whom it could raise funds through rights issue or capitalise retained earnings through bonus shares.
