Consolidated Bank set for Sh500m Treasury cash boost

The Treasury is set to inject Sh500 million into Consolidated Bank to boost its capital base, offering a vital lifeline for the State-owned lender whose regulatory ratios have been stretched in recent years.

The proposed funding was revealed in the Treasury’s supplementary budget tabled in Parliament last Thursday.

It is expected to bring the lender into compliance with Central Bank of Kenya’s minimum capital requirements as well as accelerate growth through additional deposits and an expanded loan book.

The cash injection, however, comes at a time when CBK is set to raise the minimum requirement on three key capital ratios by an extra 2.5 percentage points starting January, which could again put the lender below or on the margins of the new regulatory thresholds.

Its core capital to total deposit liabilities ratio stood at 5.7 per cent in the period, falling 2.3 per cent below the minimum regulatory mark.

Core capital to total risk weighted assets was 5.1 per cent reflecting a 2.9 per cent shortfall while total capital to total risk weighted assets stood at 7.6 per cent or 4.4 per cent below the minimum threshold.

Consolidated Bank had made the funding request based on the current CBK capital ratios that it had breached for years, slowing down its growth in the competitive banking sector where cash-rich rivals have a bigger market share.

The lender’s core capital stood at Sh706.3 million in three months to September, falling under the statutory minimum of Sh1 billion and marking the second straight quarterly decline.

READ: Treasury prepares to inject capital in Consolidated Bank

A drop below the minimum CBK ratios limits a bank’s ability to take more customer deposits or lend out more cash without attracting regulatory sanctions.

The CBK says the new higher ratios are meant to cushion banks from unforeseen external shocks, giving them more resilience to withstand macro-economic and cross-border risks.

Operational constraints brought by the capital shortfall have been reflected in Consolidated’s lending that has stagnated in the past one year.

Its loan book stood at Sh9.7 billion in September compared to Sh10.5 billion in June, Sh10.7 billion in March and Sh10.8 billion in December 2013.

The stagnation has led to reduced interest income and a net loss of Sh154.9 million in the nine months to September, compared to a net profit of Sh30 million a year earlier.

The Treasury’s new funding of the bank comes after it raised Sh1.7 billion through a corporate bond in 2012 that had targeted Sh2 billion.
The lender is yet to issue the remaining Sh2 billion bond for which it had received regulatory approval.

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

The new entity issued significant shares to its large depositors, including the government, which controls 50.2 per cent ordinary shares of the bank. State agencies Kenya Pipeline, the Kenya National Examination Council and the National Hospital Insurance Fund also hold ordinary and preference shares of the lender.

The bank has made a full turnaround, which included clearing retained losses of Sh6 billion. Its privatisation has been mooted for years but it remains in the hands of the government to date.