NBK ratios fall further below statutory caps


National Bank chief executive Wilfred Mutuku. PHOTO | FILE

The National Bank of Kenya (NBK) has seen its quarter three capital ratios fall further below regulatory requirements even as the lender’s net earnings decreased fourfold to Sh521 million compared to last year’s Sh2.25 billion.

The NBK’s total capital to total risk-weighted assets ratio stood at 12.6 per cent as at September 2016, which is 1.9 percentage points below the Central Bank of Kenya’s (CBK) statutory minimum of 14.5 per cent.

The bank first breached the ratio — which is important if the lender wants to grow its loan book — in March when it fell short by 1.4 per cent after remaining compliant by a razor margin for several quarters.

Wilfred Mutuku, NBK chief executive, said the bank had made “good progress” in securing Sh4.4 billion loan from its top shareholders — The National Social Security Fund (NSSF) and the Treasury — to help it get back to compliant territory.

“We are going for tier two debt. We’ve made good progress. We are expecting feedback by end of this month,” Mr Mutuku told the Business Daily in a telephone interview.

The NSSF, the largest NBK shareholder with a 48.05 per cent stake, is expected to inject Sh3 billion into the lender with the balance coming from the government which directly owns 22.5 per cent of the bank.

The NBK, which was earlier this year hit by an accounting scandal, saw its loan impairment costs in quarter-three triple to Sh1.9 billion compared to the Sh586 million it posted in a similar period last year.

READ: National Bank’s bad loans quadruple to Sh27.3 billion

Other operating costs — which management attributed to investments in technology — increased 37.2 per cent to Sh2.2 billion compared to the previous year’s Sh1.58 billion, further denting the bank’s bottom line.

National Bank, which sacked chief executive Munir Sheikh Ahmed in April, has sought the capital injection from its main shareholders to substitute for a three-year impasse on a planned Sh13 billion rights issue, which failed to take off due to differences between the two top shareholders.

Francis Mwangi, head of research at the Standard Investment Bank, says it is easier for the NBK to secure debt from its shareholders compared to raising equity from them.

“The issue is about flexibility. Raising debt is faster,” said Mr Mwangi in an interview with the Business Daily.

The NBK’s massive drop in quarter three profitability makes it the third listed lender to report a dip in earnings in the period including Barclays Bank and NIC Bank.

National Bank’s earnings high loan impairment costs arose after the lender’s volume of non-performing loans grew more than fourfold to Sh26.1 billion as at September — equivalent to 42 per cent of its loan book.