Housing Finance Company Limited (HF) has made commitments to the Central Bank of Kenya to reverse its multiple breaches of capital and lending rules.
Besides lacking sufficient capital, the lender also disbursed loans in specific instances that put its core capital at risk.
A bank must not lend more than 25 percent of its core capital to one borrower or related borrowers in the rule known as single obligor.
HF’s single obligor ratio stood at 40.04 percent as of December 31, 2021. Lending to a single insider such as a director or shareholder is capped at 20 percent of core capital.
HF’s single insider ratio was 65.72 percent in the review period. The institution had other capital breaches.
“The group has engaged the regulator (CBK) on the regulatory breaches and the actions management is taking to regularise the position,” the lender’s parent firm HF Group disclosed in its latest annual report.
“The bank has shared a time bound action plan on how and when each breach will be cured. As the bank continues to achieve progress in resolving non-performing loans and achieving revenue growth, we are confident that the business will turn around.”
Besides flouting banking rules, the capital and lending breaches also saw the institution go against the covenants it has signed with multiple lenders.
These include Shelter Afrique, East African Development Bank and European Investment Bank. HF received temporary waivers for the covenant breaches from some of the lenders, a move that has seen some of the loans classified as if they are payable in less than a year.
“The group lenders require compliance with regulatory ratios. The group, therefore, remains in breach of some of the financial covenants as a result of the regulatory breaches,” HF Group said in the report.
The Nairobi Securities Exchange-listed firm said it is taking several measures to address the capital shortfall which is the result of years of losses.
It plans to sell Rehani House in Nairobi’s central business district by the end of this year in a transaction it says will boost core capital and generate a one-off gain.
HF is also seeking to convert some of its borrowings into tier 2 capital besides opening talks with new equity investors.
The banking subsidiary of HF Group is among nine institutions that were flagged by CBK for non-compliance with various rules last year, down from 13 in 2020.
