The Treasury’s huge holding of preferential shares of National Bank of Kenya (NBK) will see it earn nearly half (Sh313.5 million) of the Sh665 million total dividend payout announced yesterday, as ordinary shareholders take a 33.3 per cent cut on the 2010 payment.
The bank announced a reduction of dividend to ordinary shareholders by a third to Sh0.40 a share, after recording a 23.5 per cent dip in net profit to Sh1.5 billion.
The dividend payout for preferential shareholders was, however, held constant at Sh0.15 a share, giving the Treasury, which owns 70 per cent of the preferential stock, an advantage over ordinary shareholders.
The National Social Security Fund, which is the single largest shareholder in the bank with 48 per cent of the ordinary shares and 21 per cent of the preference shares will receive Sh226.05 million dividend.
The drop in the bank’s dividend payout is set to disappoint shareholders as rival lenders such as Equity, Kenya Commercial Bank and Barclays rewarded their shareholders with double-digit increase in dividends.
National Bank has a policy of paying only half of net profit as dividends, keeping the rest as retained earnings.
The lender’s dividend payout in 2010 ended a 12-year drought during which the bank nearly collapsed on the weight of a huge non-performing loans portfolio mainly owed by politically connected state officials and businesspeople.
The drop in profit last year was partly due to a 59.4 per cent increase in the tax bill to Sh1 billion on what the bank attributed to gains from sale of bonds in 2010, whose taxes were pushed forward to last year.
National Bank also provided Sh692 million for bad debts in the period under review, reflecting a 91.1 per cent rise over 2010.
This pushed up total operating expenses by 21.5 per cent to Sh5.3 billion from Sh4.4 billion. The total non-performing loans and advances rose to Sh1.1 billion from Sh906.6 million.
“The profit dropped because of higher taxes and provisions for bad debt,” said managing director Reuben Marambii.
The higher tax rate and operating expenses eroded growth in earnings from lending. The grew its loan book 34.6 per cent to Sh28 billion, earning Sh3.5 billion in interest compared to Sh2.3 billion the previous year.
Mr Marambii, who is due to retire this year, said NBK would emphasis on lending to companies and individuals to grow profits and cut devaluation losses on government securities.
Valuation of bonds has come down significantly from the second-half of last year due to the high interest rates brought about by a tight monetary policy.
NBK cut its portfolio of bonds held for dealing to Sh828.8 million from Sh10.7 billion as it reclassified some of the securities to be held for maturity, pushing the latter asset category to Sh25.8 billion from Sh18.8 billion.
Mr Marambii said the lender will roll out agency banking in the next quarter to reach more customers and boost transactional income. “We are going to start with 250 agents but we could recruit more,” he said.
The bank is also targeting 10 new branches this year, in a bid to expand its share in the retail banking market.
The profit drop is a departure from the double digit earnings announced by other banks such as Equity whose net profit rose 45 per cent, KCB (53 per cent), and Co-operative Bank (17 per cent).
“Despite the disappointing profit figures, top line performance was in line with industry growth,” Standard Investment Bank said in a statement.
