National Bank of Kenya (NBK) sank into Sh3.84 billion net loss for the half year ended June on the back of a Sh2.3 billion payout to a former Member of Parliament as compensation for auctioning his sisal farm about 16 years ago.
NBK, a fully-owned subsidiary of KCB Group, has had to make the payment to Mr Basil Criticos leading to the loss compared with Sh964.15 million net profit posted in a similar period last year.
KCB Group chief executive Paul Russo said in an interview with the Business Daily that the “significant” award drove up costs of NBK from Sh4.79 billion to Sh9.28 billion.
“You can be confident about your case. Unfortunately, you do not decide on it,” said Mr Russo.
“At a personal level, I do not agree with the outcome but I live with the outcome because there is an entity that is mandated to make those decisions and it has made the call. We live with the consequences.”
The Court of Appeal in April ordered NBK to pay Mr Criticos the billions for auctioning his sisal farm about 16 years ago.
The judges found that the auction in September 2007 of the 15,994.5 acres in Taita Taveta belonging to Mr Criticos was undervalued given that there were buildings, sisal, quarry, and road networks on the land. The land had been used as collateral.
NBK had initially successfully defended the claim at the High Court but the guarantor appealed against the High Court ruling at the Court of Appeal.
The Court of Appeal overturned the High Court decision and awarded Mr Criticos damages of Sh2.3 billion against the bank.
NBK had filed an application at the Supreme Court of Kenya to appeal against the decision by the Court of Appeal but lost the case.
KCB directors, relying on independent external legal advice, had been optimistic of NBK succeeding in reversing the award at the Supreme Court on the basis of substantive public interest issues. The group had not made any provision for this, as at the end of December, on the strength that no material liability was going to crystallise from this matter.
The half-year loss has widened NBK’s cumulative losses to Sh9.03 billion from Sh5.19 billion. Its core capital has also dropped by 44 percent to Sh6.22 billion, leaving it in breach of three ratios used by the regulator to assess the capital strength of a bank.
KCB, which had by the end of last December invested an estimated Sh8.45 billion in NBK to bring it into compliance with capital requirements, may have to inject additional capital.
“NBK is below core and total core capital adequacy ratios by 4.3 percent and 3.9 percent respectively. Ratios were impacted by the loss registered in half a year. Management is exploring options to correct this position,” said KCB.
