Treasury prepares to inject capital in Consolidated Bank
People walk past a Consolidated Bank branch in Nairobi. The Treasury has promised to invest capital in the bank using the supplementary budget. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
The bank has been able to make a full turnaround, which included clearing retained losses of Sh6 billion, through retained earnings without any capital investment from the government.
Consolidated Bank is set to secure capital injection from the government even as it makes a second attempt at recruiting a chief executive.
The government-owned bank that recorded losses in the first half of the year due to lack of funds to grow its business has not had a substantive chief executive since the retirement of David Wachira last year.
The bank advertised for the position of chief executive last week.
The Treasury has now promised to invest capital in the lender using the Supplementary Budget to be tabled when Parliament resumes.
“We acknowledge they are restricted by capital and we will inject capital as we wait for the privatisation rather than for them to keep mark-timing,” said the Treasury secretary Henry Rotich in an interview with the Business Daily.
Mr Rotich said his office was studying a business plan submitted by the bank on the way forward before making an allotment.
“The bank requested for approximately Sh500 million. However, we wait for a final decision from the office of the CS Treasury on exactly how much will be disbursed,” said Benson Ateng, chairman of the bank.
Besides the financial challenges, the bank has also had to deal with governance issues emanating from the succession plan of its board and chief executive. Dr Ateng however said a suit filed in court blocking the appointment of a new CEO had been withdrawn, paving the way for fresh recruitment.
The bank has been able to make a full turnaround, which included clearing retained losses of Sh6 billion, through retained earnings without any capital investment from the government. It has, however, slipped back to losses after its business growth fully exploited its capital limits, forcing it to slow down.
In 2012, then Finance minister Njeru Githae promised the lender Sh500 million against a request of Sh1 billion, but the promise was never honoured.
Currently, its core capital is below the statutory minimum of Sh1 billion, at Sh840 million. The shareholders input in the bank is below that required to support its current size of deposits and loan book.
Its core capital to deposit ratio is at 6.7 per cent against a mandatory eight per cent while the core capital to risk assets ratio was six per cent compared to statutory eight per cent.
The position is expected to worsen with Central Bank raising the capital requirements at the end of the year. With the current level of business, the bank needs at least Sh500 million to be compliant.
Consolidated Bank issued the first tranche of a corporate bond last year and is yet to issue the remaining Sh2 billion of the Sh4 billion bond. Issuance of the bond would, however, still leave it in deficit as debt does not qualify as core capital.
