Capital Markets

Negative outlook hits National Bank stock

National Bank CEO Wilfred Mutuku Musau. PHOTO | SALATON NJAU
National Bank CEO Wilfred Mutuku Musau. PHOTO | SALATON NJAU 

Analysts are forecasting a bleak outlook for State-backed National Bank of Kenya (NBK) saying the lender is yet to resolve issues such as capital raising, rising volume of toxic loans and upholding corporate governance rules.

The NBK touched a one-year low of Sh6.00 per share during trading on Wednesday, but edged up to close at a volume-weighted average price of Sh6.50 apiece.

Cytonn Investments has valued National Bank’s stock at Sh2.70 apiece, less than half of the counter’s current price, representing a downside of 58 per cent for investors.

Eric Munywoki, head of research at Sterling Capital, also projected a negative view of NBK saying the mid-sized lender needs to unlock a rights issue, which has been on the cards for the last three years.

“The bank is yet to show the strategy of capital raising and is currently below the minimum statutory requirement, which has also limited its capacity to lend,” said Maurice Oduor, investment manager at Cytonn.


“There is no clear strategy on how they intend to diversify their income streams and especially with net interest income coming under pressure as a result of the enactment of Banking Amendment Act.”

The NBK’s total capital to total risk-weighted assets ratio stood at 13.2 per cent as at June 2016, which is 1.3 percentage points below the Central Bank of Kenya statutory minimum of 14.5 per cent.

Mr Munywoki said despite the appointment of acting boss Wilfred Mutuku Musau as substantive NBK chief executive last week, the lender needs to address structural challenges of liquidity and capital.

“The challenge for the last three years is liquidity and holding the planned rights issue to raise capital. They can also go for tier II funding in the form of bonds or engage development finance institutions,” he told the Business Daily in an interview.

Shareholders’ approved a Sh13 billion rights issue in June 2013 but the capital raising plan ran into headwinds after the government declined to take up its rights amid differences on the fate of the bank’s preference shares.

State-run pension scheme National Social Security Fund is the largest shareholder at NBK with a 48.05 per cent stake while the Treasury directly owns 22.5 per cent of the bank.

Standard Investment Bank said it had stopped coverage of National Bank due to an opaque management team and continued pussyfooting on raising capital.

“We currently do not cover NBK because of poor access to management and lack of capital structure clarity,” SIB said in response to our queries.

National Bank, which acrimoniously sacked chief executive Munir Sheikh Ahmed in April, reported net profit in the half year to June tumbled to Sh311.2 million from Sh1.7 billion in 2015.

The volume of bad loans more than quadrupled to Sh27.3 billion in the period under review.

“All these put together do not support positive outlook for NBK and it is a bank that will struggle and more so as the banking sector becomes more competitive with distinguishing factor going forward being efficient service delivery  through alternative channels,” Cytonn said.