MPs have directed the Treasury and the NSSF to reject the planned takeover of the troubled National Bank of Kenya (NBK), claiming that it has been grossly undervalued and that the move is detrimental to workers, taxpayers and minority shareholders.
The National Assembly’s Finance committee has gone ahead to give recommendations on how the NBK can be revived, saying the Treasury ought to seek cash to recapitalise it to ensure it is compliant with banking laws. Another reason advanced by the MPs as they rejected NBK acquisition proposal by the Kenya Commercial Bank (KCB) is that, as the chief collector of State revenue, the lender is too big an institution to be allowed to go under.
The legislators’ concerns sound valid until you keenly interrogate the dire state NBK is in. The lender is operating at 2.2 percent in terms of core capital to deposit ratio. This is far from the prudential minimum of eight percent. The bank is clearly treading on a dangerous ground.
The Treasury and the Central Bank are in agreement that this is untenable, and have consequently stated that something needs to be done, and done pretty fast to rescue it from imminent collapse.
If Treasury had the capacity to mobilise resources to turn around the sagging fortunes of NBK, it would already have done so in conjunction with the CBK.
By underlining the urgency of the lender’s takeover, the two key financial institutions are essentially saying they have run out of other viable options to keep it afloat.
And were the Treasury to agree to hunt for funds to prop up the bank, how long will that take? As it is, there is no moment to waste and apparently the best and quickest solution for NBK is the buyout deal.
The House committee, therefore, has to heed the counsel of the Treasury and CBK, avoid meddling and allow the takeover process to proceed smoothly to conclusion. If NBK were to collapse, the same interests the legislators are defending will be hurt even more deeply. More staff will lose their jobs and minority shareholders will be left holding worthless papers. The “strategic institution” they are sentimentally holding on to will also be non-existent.
The decision of the MPs demonstrate that they do not fully grasp the scope of the problem and if they do, then they do not appreciate the importance of saving NBK while it is still on its feet.