KCB Group plans to inject $100 million, about Sh14.5 billion, into KCB Bank Kenya as it looks to recapitalise the subsidiary whose compliance with prudential requirements regarding capital adequacy has come under pressure in the recent past.
In the half year that ended June 2023, KCB Kenya’s core capital to total deposits stood at 10 percent against the statutory minimum of eight percent.
This compares to the 15.8 percent that was reported by the subsidiary 12 months earlier, a pointer to the decline in the capital buffers of the Kenyan business unit.
The subsidiary’s compliance with statutory minimums also came under pressure with regard to core capital to risk weighted assets which closed the six months ended June 2023 at 11.1 percent against the prescribed 10.5 percent. Twelve months ago, KCB Kenya’s core capital to risk weighted assets stood at 15 percent.
KCB Group CEO, Paul Russo, attributed the declining capital adequacy to the acquisition of the DR Congo subsidiary, and Trust Merchant Bank (TMB), which was completed on December 14, 2022.
KCB Group now holds an 85 percent stake in the DR Congo entity which has Sh272.2 billion worth of assets making it the second largest contributor to the group’s asset base after the Kenya unit.
“There is pressure on KCB Kenya with regard to capital, that’s for sure and that is attributable to the payment made for TMB, that strained KCB Kenya because remember they had to pay it as dividends to group for group to pay for the acquisition of TMB,” Russo told the Business Daily.
In the period under review, KCB Kenya posted Sh13.9 billion in profit after tax, a 15.8 percent decline in net earnings when compared to the six months ended June 2022.
KCB Kenya’s performance took a significant hit from the doubling of provisions for bad debt from Sh3.3 billion in the first half of 2022 to Sh7.9 billion in the first half of 2023.
“We intend to take tier II capital for the subsidiary. We are looking at US$ 100 million and it will most likely come in to replace the debt that we had taken earlier on that is not counting any more significantly towards tier II capital computations,” said Mr Russo.
