Equatorial Commercial Bank (ECB) sank deeper into the red with a second consecutive full-year loss after Mwalimu National Sacco bought a controlling stake in the lender.
The tier-three lender, owned 75 per cent by the giant teachers’ credit union, posted a net loss of Sh486 million in the year ended December compared to Sh326 million a year earlier.
ECB’s performance is attributable to a contracting loan book, lower interest income and declining non-funded revenue which impacted the lender’s bottom-line.
Net interest income dipped by a third to Sh612 million from Sh919 million while the loan book contracted 17 per cent to Sh10.3 billion in the review period.
Non-funded income dropped by two-thirds to Sh182 million, reflecting lower earnings from forex trading as well as fees and commissions.
The results saw ECB continue its decade-long dividend drought, meaning teachers will have to wait longer before they begin to reap any returns from their investment in the bank previously owned by Naushad Merali.
ECB shareholders last week approved a second rights issue in three months, seeking to raise Sh1 billion, having raised Sh500 million in December last year.
ECB chief executive Tim Gitonga in an earlier interview said the cash will fund the upgrade of technology by buying a new core banking software, open new branches countrywide, and boost capital reserves which have been eroded by concealed losses.
The ongoing cash call will see ECB sell 200 million shares at Sh5 each to existing shareholders. Teachers, through Mwalimu National Holdings, the investment arm of Mwalimu National Sacco, agreed to pump in Sh750 million to defend their 75 per cent interest in ECB.
Mwalimu Sacco first invested Sh1.6 billion to acquire a 51 per cent stake ECB in the second half of 2014.
The giant teachers’ sacco later last year pumped in a further Sh1 billion for an additional 24 per cent stake.
The teachers’ credit union — ranked the largest sacco by assets valued at Sh28.6 billion — in December put Sh375 million into ECB in a rights issue which raised Sh500 million.
ECB’s loss-making streak and fresh cash call in a span of three months raises queries on the financial health of the lender ahead of Mwalimu Sacco buying into the bank.
Despite the fresh capital provided by Mwalimu Sacco, accumulated losses at ECB wiped off more than 60 per cent of the bank’s capital in 2014.
Mr Gitonga said the December rights issue was fully subscribed and that the money had helped boost capital margins.
ECB’s total capital to total risk-weighted assets stood at 17.41 per cent as at December 2015, against the 14.5 per cent ratio set by the Central Bank of Kenya, giving the lender little headroom to grow loan book.
The volume of bad loans grew 12 per cent to hit Sh3.3 billion while loan loss provisions were cut by half to Sh359 million from Sh880 million in 2014.