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Capital breach sets up Bank of Africa for new fundraising

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A Bank of Africa Kenya branch in Nairobi. FILE PHOTO | NMG

Bank of Africa (BOA) Kenya capital ratios have fallen below the regulatory thresholds again, signalling the need for further capital injection to prop the lender’s funding base.

In the year ended December 31, 2022, the bank breached its core capital to total deposit liabilities ratio which slid below the recommended eight percent to 7.8 percent from a surplus of 9.2 percent last year.

The breach shows the bank’s core capital which stood at Sh2.601 billion was shy of the mark by Sh16.9 million to cover the outstanding customer deposits of Sh32.73 billion.

The marginal breach in the core capital/total deposit liabilities ratio is despite recent efforts by the bank to fully provide for its capital adequacy ratios in recent years with support from its parent firm, BMCE Bank of Africa which holds a majority 72.41 percent stake in the local banking outfit.

In the prior year to December 2021, BOA Kenya disclosed initiatives to enhance its core capital which included disposing of its shareholding in Bank of Africa Uganda and Bank of Africa Tanzania which released Sh560.6 million into capital.

“This indeed created a headroom for business development while the cash flow received was also injected into income-generating ventures,” the bank had stated.

Further core capital-enhancing initiatives for the lender during the year included the signing of a Sh787.6 million ($6 million) portfolio risk-sharing guarantee scheme with the International Finance Corporation.

BOA Kenya nevertheless still meets all other recommended capital metrics as prescribed by the Central Bank of Kenya including holding the minimum level of regulatory capital at Sh1 billion and maintaining the ratio of total regulatory capital to risk-weighted assets and the Basel ratio at 10.5 percent.

The bank also maintains total capital of not less than 14.5 percent of risk-weighted assets plus risk-weighted off-balance sheet items.

Despite the breach, BOA Kenya was still profitable in the year to December 2022 even as its net earnings fell to Sh195.1 million in the period from Sh218.2 million previously.

The growth in profitability helped hold the bank’s accumulated losses at a flat Sh5 billion for the period.

The slight dip in net profit is nevertheless traceable to a marginal rise in operating expenses which settled at Sh2.786 billion in 2022 from Sh2.692 billion a year earlier.

Some small and medium-sized banks could face capital pressures this year on the lapse of regulatory accommodation in terms of complying with the stricter IFRS 9 accounting standards that started in 2018.

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