National Bank tests liquidity ratios as MPs reject State cash injection

National Bank of Kenya (NBK) has nearly reached the limit of its statutory ratios following Parliament’s rejection of the National Treasury’s plans to inject new cash into the institution.

Its liquidity ratio stands at 21.1 per cent against a minimum requirement of 20 per cent, leaving a 1.1 per cent headroom. In June the liquidity ratio was higher at 25.8 per cent.

Despite the cash crunch, the bank more than doubled its profit in the nine months to September to Sh2.25 billion on the back of a Sh4.1 billion new lending in the three months to September.

It boosted its position by Sh1.72 billion from the sale of 12 buildings in the course of the year.

Parliament rejected the bank’s request for an allocation of Sh4.9 billion which the Treasury had initially proposed to inject in a rights issue intended to raise a total of Sh13 billion.

The government owns 22.5 per cent of the company and is the second-largest shareholder after the National Social Security Fund, which has a 48 per cent stake.

The firm’s chief executive and chief financial officer were said to be on leave but a senior manager at the bank told the Business Daily the lender was suffering from capital shortage because it was yet to get a go-ahead for the rights issue from the regulator, but could not elaborate on whether this had to do with the MPs’ rejection of the capitalisation request.

“We have been waiting for approval of the rights issue from the Capital Markets Authority since June last year to now.

“We are yet to get a response so that we can move ahead with raising money. That is why capital ratios are low,” said the manager.

READ: MPs deny NBK Sh5bn allocation for rights issue

The Treasury is reported to be mulling merging NBK with state-sponsored Development Bank of Kenya and Consolidated Bank of Kenya, a development that could have influenced the change of mind in financing NBK as a standalone institution.

The bank’s capital ratios in relation to lending also remained tenuous with a headroom of only 0.9 percent above the minimum requirement of 14.5 per cent. This means that the institution must control the amount of lending going forward.

The ratios would have been worse without the rights issue where the company capitalised its reserves – through a bonus share issue – in order to continue expanding business. The recapitalisation was done awaiting the cash from the rights issue.

“This [bonus shares] is necessitated by the need to retain the profits of the year to meet the regulatory capital requirements as we await approval of the rights issue,” said the company in its annual report for the year ended December 31, 2014.