United Bank of Africa (UBA) has received Sh1 billion capital injection from it Nigerian parent company to support its ambitions of booking large loans.
UBA, which posted profit for the first time after seven years of operations, increased its core capital to Sh2.1 billion from Sh1.1 billion.
“We gave changed our strategy to push corporate banking and for that we need capital to sell huge loans,” said the bank told the Business Daily.
Banks are not allowed to lend more than 25 per cent of their core capital to one borrower.
UBA has the highest capital adequacy and liquidity ratios in the market signalling significant idle capacity. Its core capital to deposits ratio is 98.9 per cent against a statutory 10.5 per cent.
The lenders core capital to loan book ratio is 43 per cent compared with the mandatory 10.5 per cent. The high capital ratios leave it with huge room to mobilise deposits and grow its loan book.
Previously the bank had disclosed that its small capital base has seen it push loans worth more than Sh40 billion from the Kenyan market to the group balance sheet to avoid falling foul of the regulator’s prudential regulations. Its liquidity ratio was 58.6 per cent against the minimum statutory level of 20 per cent.
The bank reported a net profit of Sh68 million for the six months to June up from a loss of Sh52 million in a similar period last year.
UBA has accumulated losses of Sh1.4 billion during its seven-year period in the country, which have eaten into its core capital position leaving it marginally above the mandatory Sh1 billion.
The National Treasury has been pushing to increase the mandatory core capital to Sh5 billion in three years time in an effort to consolidate the banking sector. The proposal is contained in this year’s finance bill.
UBA’s core business declined in the three months to June with deposits shrinking by Sh900 million and the loan book contracting by Sh300 million.
Its customers savings stood at Sh2.1 billion lower than its loan book of Sh2.5 billion. The bank attributed the fall in its deposit base to a decision to let go expensive cash to cut on its interest expenses.
Its interest expenses dropped by five per cent to Sh97 million while interest income more than doubled to Sh153 million from Sh71 million compared to June last year.
UBA operates three branches in the country with about 70 employees.
The bank’s turn to profit coincides with the appointment of its first Kenyan chief executive in Isaac Mwige who was hired in November 2014.
The pan-African lender’s profit performance was driven by write-back of bad loans. UBA had no loan loss provisions, a situation it attributed to the write backs. Its non-performing loans are worth Sh63 million.
UBA Group operates in 18 countries in Africa and is also licensed in America, France and Britain.
The decision to increase capital will put the lender in a better position given the intention by the Treasury to increase the minimum amounts from the current Sh1 billion to Sh5 billion.