KCB Group is ready to inject Sh938.8 million into the National Bank of Kenya (NBK) to help the subsidiary conform with regulatory capital adequacy requirements, the Business Daily has established.
The lender which posted a net profit of Sh40.6 billion in the year ended December has been working to bring NBK’s capital strength towards Central Bank of Kenya (CBK) approved minimum levels after acquiring the bank in 2019.
The capital injection whose format (equity or debt) is yet to be disclosed nevertheless is dependent on CBK approvals.
“Assuming the regulator approves, we will be compliant with NBK capital adequacy requirements by the end of March,” said KCB Group chief executive Paul Russo.
Presently, NBK lies in breach of its total capital to total risk-weighted assets with the minimum statutory capital set at 14.5 percent against the bank’s ratio of 13.5 percent.
KCB has so far invested an estimated Sh8.45 billion in NBK to bring it into compliance with capital requirements.
This includes a Sh5 billion equity financing when buying the bank out in 2019 and a Sh3.45 billion loan later converted to equity.
NBK however meets other requirements such as core capital that stands above the Sh1 billion threshold at Sh11 billion.
The subsidiary further meets other metrics including core capital to total risk-weighted assets and core capital to total deposit liabilities.
Additionally, NBK’s liquidity ratio stands above the minimum statutory ratio of 20 percent at 40.5 percent.
While NBK is yet to fully satisfy all capital adequacy requirements, the lender has seen a turnaround back to profitability under the ownership of KCB Group.
However, NBK’s full-year profit to December 2022 fell to Sh719.8 million from Sh1.017 billion previously.
Earlier, KCB had indicated that profits alone would not be sufficient in meeting NBK’s required capital levels.
“We must make NBK compliant with the capital requirements. We have made a decision that we will bring in capital and make NBK compliant. If you are running a bank, you have to make sure it is compliant,” Mr Russo said previously.
NBK’s drop in profitability was largely attributable to greater expenses in the period with loan loss provision costs for instance doubling to Sh2 billion from Sh1.014 billion in 2021.
The higher cover on expected dud loans nevertheless came as NBK marked an improvement in asset quality as gross non-performing loans eased to Sh18.5 billion from Sh26.5 billion previously.
During the year, NBK’s total assets shrunk slightly to Sh142.8 billion from Sh146.5 billion as investments in government securities fell to Sh24.6 billion from 33 billion a year before.
NBK’s loan book however expanded in the period to reach Sh71.2 billion from Sh67 billion previously.
Customer deposits meanwhile came off slightly to close 2022 at Sh105.7 billion from Sh106.1 billion.