Consolidated Bank plans cash call to shore up capital

State-owned Consolidated Bank is planning a cash call by the end of the year to boost its capital base currently below regulatory requirements.

The bank has asked its owners, who are government agencies, to match the Treasury’s Sh500 million capital injection done last year to avoid being diluted.

“The bank is planning a rights issue to allow the other shareholders to retain their equity interest by injecting an equivalent amount,” reads the bank’s annual report.

The bank’s management told Business Daily it expects clarity on the way forward within the last quarter of this year. It however said it had reviewed the amount it planned to raise from the rights issue following an increase in the minimum capital requirement by the Central Bank of Kenya to Sh2 billion by end of next year and Sh5 billion by 2018.

“This (the new capital requirements) considered against the background of our ambitious growth plans, has significantly changed the quantum capital needs and the scope of discussions with the shareholders,” said Consolidated Bank in an email response.

The bank’s shareholders include National Social Security Fund with 11.2 per cent, the now defunct Kenya National Assurance at 9.7 per cent, Kenya National Examination Council 3.5 per cent, Kenya Pipeline 3.6 per cent and National Hospital Insurance Fund with three per cent shareholding.

Failure by the state organs to inject additional capital will lead to the Treasury increasing its ownership in the lender from the current 50.2 per cent held through the Deposit Protection Fund.

The State has recommended, through the parastatal review taskforce, the merging of Consolidated Bank with other state- owned banks—Development Bank and National Bank.

READ: National Bank confirms Treasury push for its merger

Consolidated Bank has been struggling with capital constraints which have hampered its growth causing it to backslide into losses. It posted a Sh19 million loss in March this year as its loan book and deposit base shrank.

Last year the Treasury made good its word to inject additional funds in the lender after three years of promises. In 2012 the bank raised Sh1.7 billion through a corporate bond that had targeted to raise Sh2 billion.

The lender is yet to issue the remaining Sh2 billion bond tranche for which it had received regulatory approval with management stating that its immediate need was shareholders’ capital.

“Plans for tapping into the second tranche of the corporate bond are currently in abeyance. The bank’s current focus is therefore on raising tier I capital that affords greater leverage from a prudential and growth perspective,” said the lender.

As at March the bank’s core capital to its risk weighted assets stood at 8.8 per cent against the mandatory 10.5 per cent, making it non-compliant and hindering its lending expansion.

To meet the capital adequacy requirements ratios with its current business size, the bank requires a minimum Sh350 million capital injection.

The government has in the past said it plans to privatise the bank with audit firm PricewaterhouseCoopers tasked with advising on the strategy.

However, it has the options of inviting deep-pocketed strategic investors or selling Consolidated to the public through an initial public offering. Or both.

Consolidated Bank was formed in 1989 on merger of nine insolvent banks, including the Estate Finance Company of Kenya, Estate Building Society of Kenya and Jimba Finance.