HF Group is targeting to recover Sh10 billion non-performing loans (NPLs) and raise fresh capital to meet the minimum level required to comply with the Central Bank of Kenya (CBK).
The lender discloses in its latest annual report that it wants to step up the recovery of the legacy NPLs over a five-year period through auctions and private treaties as it continues to resolve challenges such as litigations that have been standing in the way.
“There is a lot of progress in the resolution of matters under litigation, completion of stalled projects, aggressive sale of the completed office space/residential property, negotiated settlements, and realisation of collateral either via private treaty or auction,” says HF.
“The target is to resolve the entire legacy non-performing loans (Sh10 billion) over a five-year period.”
HF said the NPL recovery would reduce the statutory credit risk reserve resulting in a transfer to retained earnings and improve the core tier I and total capital.
Gross NPLs reduced from Sh8.67 billion to Sh8.48 billion at the end of last year, with the NPL ratio moving from 22 percent to 21 percent but staying below the industry average of 14 percent.
The lender wants to supplement loan recoveries with fresh raising of both tier I and tier II capital and has already identified a transaction adviser to lead the search.
“The Group has appointed a transaction adviser to scout for potential investors for both tier I and tier II capital,” says HF in the annual report.
The lender posted a Sh265.57 million net profit for the full-year 2022, marking a turnaround to profitability from a net loss of Sh682.75 million a year earlier.
The group’s total expenses declined by 14.3 percent to Sh2.84 billion on reducing costs, despite increased staff costs.
However, the lender’s core capital to total risk-weighted assets and total capital to total risk-weighted assets closed at 2.2 percentage points and 2.3 percentage points below the required CBK minimum.
The core capital to total deposits ratio was at eight percent, being exactly the required minimum.
HF says it has already engaged the CBK on the current regulatory breaches and shared a time-bound action plan on how and when each breach will be cured.
The lender has also received a commitment from the top shareholder Britam Holdings (19.4 percent stake), that it will continue offering support this year. Britam 2021 lent HF Sh1 billion, repayable in 2028.
“The group’s significant shareholder (Britam) has confirmed to the directors that they will continue providing business support to the group and the bank for a period of at least 12 months from the date of approval of these financial statements,” said HF.