National Bank breach of statutory capital in first quarter worsens

Paul Russo
National Bank managing director Paul Russo. FILE PHOTO | NMG 

National Bank of Kenya (NBK) breach of regulatory capital levels worsened in the first quarter ended March as its parent company KCB Group #ticker:KCB prepares a Sh3 billion injection.

The lender’s capital supporting its deposit-taking and lending activities, which were already inadequate in December, dropped further in March.

NBK’s core capital to total deposit ratio stood at 6.8 percent as of March, 1.2 percentage points below the minimum requirement of eight percent.

Its core capital to total risk-weighted assets was 9.8 percent, 0.7 percentage points lower than the statutory minimum of 10.5 percent.

Total capital to total risk-weighted assets stood at 11.6 percent against the set threshold of 14.5 percent, a gap of 2.9 percentage points.


“All banking subsidiaries met regulatory capital requirement with the exception of NBK, which was below total capital requirement,” KCB said when releasing its results for the first quarter.

“The group has been injecting capital in a bid to improve its compliance and expected improved performance due to turn around strategies expected to bridge the deficit.”

KCB first provided NBK with a Sh5 billion capital support in December last year after acquiring the subsidiary in a share swap deal.

KCB chief executive Joshua Oigara told the Business Daily that the actual additional funding of NBK would depend on several factors, including the subsidiary’s ability to recover bad loans.

NBK is also expected to take a hit in terms of defaults from the economic impact of the coronavirus, he said.

“Core capital improved significantly, following the injection of new capital from KCB Group Plc. While this has boosted capital ratios, they still remain marginally below regulatory requirements,” said NBK in a statement.

“This is set to be addressed through organic capital growth and support from the shareholder.”

NBK’s inadequate capital ratios were partly exacerbated by an increase in customer deposits and lending.

Its loan book, for instance, rose to Sh47.8 billion in March compared to Sh45.8 billion in December while deposits increased to Sh92 billion from Sh87 billion over the same period.

NBK’s net profit more than doubled to Sh154.9 million in the first quarter ended March compared to Sh66.2 million a year earlier, helped by increased lending.