National Bank of Kenya headquarters in Nairobi. The bank plans to open between 10 and 15 branches this year as well as deepen its corporate banking business. FILE
What you need to know:
National Bank seeks shareholder approval to issue up to 1.12 billion shares.
The bank plans to open between 10 and 15 branches this year, and 10 next year, as well as deepen its corporate banking business.
National Bank of Kenya (NBK) will on Tuesday inform investors of its first rights issue, since listing at the Nairobi bourse in 1994, to finance expansion and allow the lender to handle big transactions.
The bank is seeking shareholder approval to issue up to 1.12 billion shares to its owners for a multi-billion shilling fund raising that could further cut the stake of the government in the mid-tier lender.
It plans to open between 10 and 15 branches this year, and 10 next year, as well as deepen its corporate banking business that generates about 13 per cent of its loan book.
Analysts reckon that the bank is likely to offer less than the 1.12 billion shares for the rights, which places the fund raising target at more than Sh10 billion based on its current share price of Sh20.50.
“The bank is taking up to 1.12 billion shares and based on past right issues it will definitely issue less of the shares,” said Francis Mwangi, an analyst at Standard Investment Bank.
“I believe the bank will have to issue a huge discount to guaranteed success due to huge preference shares that pay dividends ahead of other shares.”
The bank has 1.13 billion preference shares worth Sh5.6 billion and the government has 79 per cent of the shares — which are stocks that pay a fixed dividend and do not have voting rights. The National Social Security Fund owns the remaining 21 per cent.
The shares have their roots in 2000 when the bank was facing a crunch due to bad loans, which saw the government and NSSF inject Sh4.5 billion and Sh1.1 billion respectively as a bailout package.
NSSF rejected the Privatisation Commission’s proposal to convert the preference shares to ordinary stock on the basis of 1:1, saying the move would cause the fund to lose money.
This stalled privatisation of the bank. Investors will be keen to see how the Treasury, which has a 22 per cent stake in the bank, will react to the rights issue.
Earlier, former Finance minister Njeru Githae said Treasury would weigh the strategic importance of participating in the rights before injecting additional capital in NBK. The Treasury did not participate in the KCB and Housing Finance rights issues, which saw the State cut its stake in the two banks.
The government’s shareholding in KCB dropped from 70 per cent in 1990 to 35 per cent in 1998, 26.2 per cent in 2007, and 17.63 per cent last December. The NSSF has a 48 per cent stake in the bank.
NBK says the additional capital will boost its capacity to lend to larger borrowers, who it’s targeting to reverse the 52.8 per cent drop in profits to Sh729 million in the year to December.
The drop was linked to costly deposits and the lender’s heavy reliance on consumer banking that accounts for about 85 per cent of its total loans advanced.
Lending to a single borrower is capped at 25 per cent of a financier’s core capital — which means NBK can lend Sh2.4 billion to a single borrower while Kenya’s fifth largest bank, Cooperative Bank, can handle Sh7.35 billion.
NBK is also seeking a wider retail network to boost its power to gather deposits and maintain its market share.
“Our aim is to cover all counties in Kenya,” said Munir Ahmed, the bank’s managing director who took the helm in August following the retirement of Reuben Marambii.
It will join a number of banks including KCB, Family Bank, Diamond Trust Bank and Standard Chartered that have recently turned to rights issues for expansion cash.
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