The conversion brings the total equity financing that KCB has put into NBK to Sh8.45 billion, having put in an equity investment of Sh5 billion when it was buying NBK in December 2019.
NBK also boosted its capital buffers through improved profitability last year, having raised net earnings fivefold to Sh1 billion from Sh177.7 million in 2020.
KCB acquired NBK through a share swap in which it issued 147.3 million shares currently valued at Sh6.5 billion to the target investors.
KCB Group #ticker:KCB has converted a Sh3.45 billion long-term loan it had given to National Bank of Kenya (NBK) last year into equity, helping the subsidiary meet its core capital ratios after years of default.
The conversion brings the total equity financing that KCB has put into NBK to Sh8.45 billion, having put in an equity investment of Sh5 billion when it was buying NBK in December 2019.
NBK also boosted its capital buffers through improved profitability last year, having raised net earnings fivefold to Sh1 billion from Sh177.7 million in 2020.
KCB acquired NBK through a share swap in which it issued 147.3 million shares currently valued at Sh6.5 billion to the target investors and later made the additional capital injection in the newly acquired subsidiary.
“During the year, the parent company KCB Group approved the conversion of subordinated debt (Sh3.45 billion), which was classified as Tier II capital to equity. The conversion resulted in NBK complying with regulatory ratios with regards to core capital as at 31 December 2021.”
“The bank is implementing other internal strategies aimed at raising organic capital including rigorous bad debt collection and balance sheet growth to boost profitability which will ensure full compliance with the capital ratios.”
NBK’s core capital to total risk-weighted assets, which stood at 8.7 percent in 2020, rose to 12.9 percent by the end of last year, 2.4 percentage points above the statutory minimum of 10.5 percent.
The lender’s core capital to total deposit ratio stood at 9.2 percent compared to 6.2 percent in 2020, exceeding the minimum requirement of eight percent by 1.2 percentage points.
The lender also met the total capital to total risk-weighted assets ratio threshold of 14.5 percent, having fallen short in 2020 at 10.3 percent.
Compliance with this particular ratio came only after the lender added back expected credit loss provisions to capital in line with a 2018 Central Bank of Kenya guidance note on the implementation of the International Financial Reporting Standards (IFRS 9).
Without the CBK waiver, NBK’s total capital to total risk-weighted assets ratio would have stood at 14.3 percent by the end of last year, 0.2 percentage points below the statutory minimum.
The IFRS 9 standards requiring banks to provide for expected loan losses rather than those already incurred, reduces their profitability and erodes their capital base.
CBK, therefore, gave banks five years (from 2018) to bolster their capital, cushioning weaker lenders from having to immediately raise new capital.
