Companies

NBK banks on Sh5bn loans recoveries to shore up capital base

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KCB Group CEO Joshua Oigara. PHOTO | FILE

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Summary

  • National Bank of Kenya (NBK) plans to recover Sh5 billion tied in bad loans by end of the year and eliminate the need for fresh capital injection from its parent firm.
  • NBK, which made a Sh717.6 million net profit in the first half of the year compared to a loss of Sh381.3 million in the preceding similar period, is still in breach of minimum capital requirements.
  • KCB gave NBK capital in the form of a Sh5 billion equity injection in 2019 and a Sh3 billion subordinated debt earlier this year.

National Bank of Kenya (NBK) plans to recover Sh5 billion tied in bad loans by end of the year and eliminate the need for fresh capital injection from its parent firm.

KCB Group #ticker:KCB, which wholly owns NBK, says the loan recoveries—in form of asset sales such as land and vehicles— added to profits looks set to meet regulatory capital levels.

“Today there is some element of capital that is required but if you look at their performance, NBK will generate sufficient retained earnings to be able to build up for the capital that they have,” said Joshua Oigara, KCB Group  CEO.

“We are looking at recovering about Sh5 billion between now and end of the year. This is in real physical assets that we have. If these two plans run well, we don’t see ourselves requiring any material injection of capital.”

NBK, which made a Sh717.6 million net profit in the first half of the year compared to a loss of Sh381.3 million in the preceding similar period, is still in breach of minimum capital requirements.

KCB gave NBK capital in the form of a Sh5 billion equity injection in 2019 and a Sh3 billion subordinated debt earlier this year.

NBK’s adjusted core capital to total deposit liabilities ratio stood at 5.9 percent against CBK’s minimum of eight percent while adjusted total capital to total risk weighted assets was 0.7 percentage points below the required minimum of 14.5 percent.

Its stock of gross non-performing loans declined to Sh27.45 billion in June from Sh28.66 billion in June 2020, helped by repayments and recoveries.

KCB acquired NBK in 2019 through a share swap in which shareholders were allotted one share in the big bank for every 10 they previously held in the subsidiary.

The deal resulted in the National Treasury and the National Social Security Fund increasing their stakes in KCB.

KCB had earlier planned to merge NBK into its existing banking operations in Kenya but later opted to leave the subsidiary to continue operating as a stand-alone business.

The company says NBK has a unique client base, comprising government agencies and state-owned corporations, which it will continue to serve.

KCB is, however, working to integrate NBK into its back-office operations to enhance customer service, efficiencies and strengthen risk management.