- The NBK first breached the ratio in March when it fell short by 1.4 per cent after remaining compliant by a razor margin for several quarters.
- The bank has also been accused of not keeping proper books of accounts, with the lender announcing a shocking loss of Sh1.1 billion in the year ended December.
Bad loans at National Bank of Kenya more than quadrupled to Sh27.3 billion in the half year ended June, contributing to an 82 per cent drop in net profit in the period.
The lender’s net profit in the period stood at Sh311.2 million compared to Sh1.7 billion the year before.
This came as provisions for the non-performing loans increased 4.8 times to Sh1.6 billion from Sh332.7 million.
The performance reveals the trouble at the State-owned bank which was last year caught up in an accounting scandal that led to the exit of several executives including ex-CEO Munir Ahmed.
The Nairobi Securities Exchange-listed bank also continues to breach capital adequacy ratios, with its total capital to total risk weighted assets falling short of the 14.5 per cent regulatory minimum by 1.3 per cent as of June.
Breached the ratio
The NBK first breached the ratio in March when it fell short by 1.4 per cent after remaining compliant by a razor margin for several quarters.
The surge in bad debts indicates massive defaults by borrowers, raising questions about NBK’s lending standards.
Data from the Central Bank of Kenya (CBK) shows that NBK’s loan accounts rose more than 12 times to 1.6 million last year, recording one of the most aggressive lending volumes in Kenya.
The bank has also been accused of not keeping proper books of accounts, with the lender announcing a shocking loss of Sh1.1 billion in the year ended December.
The NBK earlier said most of the bad debts started piling up in the second half of last year, eroding its earnings and shareholder wealth. The bank’s shareholders’ funds dropped to Sh11.3 billion in the half year ended June compared to Sh13.2 billion the year before, making it the only mid-tier lender to record a decline in net worth so far this year. The drop in book value was driven by a decline in assets from Sh124.4 billion to Sh116.5 billion.
NBK’s liabilities meanwhile dropped by a smaller margin to Sh105.1 billion from Sh111.1 billion. Besides the alleged mismanagement, the bank has also suffered from a delayed recapitalisation plan. The Treasury, which holds a 22.5 per cent stake in NBK, has several times declined to back the lender’s multi-billion-shilling rights issue plan.
The State-controlled National Social Security Fund (NSSF) is the largest single shareholder in the bank with a 48 per cent stake. The bank has previously said it needs new capital to boost its ratios, fund expansion and redeem preference shares held by the Treasury and NSSF.
Failure to provide the funds has left NBK and the CBK in an awkward position, with the bank continuing to operate without adequate capital in what is believed to be due to an implicit State guarantee.