National Bank of Kenya (NBK) has issued a profit warning for the financial year ended December 2018 citing higher loan impairment charges and restructuring costs.
The Nairobi Securities Exchange listed lender now expects to post at least 25 percent lower earnings for the year ending December 2018 than the previous year.
The anticipated drop means its net profit for the period is unlikely to surpass Sh308 million.
“(This is) primarily due to increased loan impairment charges beyond initial projections due to a revision of valuations and values recoverable from the non performing loan portfolio,” said the firm in a cautionary statement.
“During the year the group incurred a one off restructuring cost (voluntary early retirement programme) as part of wider business alignment, the full benefit will be realized in 2019,” the statement added.
NBK has in the recent past registered a series of poor performance that has pushed its survival into an uncertainty mode.
The lender is in the grip of an operational crisis, stuck in a negative liquidity position as at the end of the first nine months of the year even as plans to sell it remain in limbo.
The NBK’s nine-month profit dipped by 84 per cent to Sh21.97 million owing to reduced lending.
Loans and advances to customers dropped by Sh9.9 billion or 17 percent to Sh48 billion compared to last year’s nine month position of Sh57.88 billion.
Treasury has approved for sale of NBK among other two State owned lenders Consolidated Bank (CBKL) and the Development Bank of Kenya (DBK) along with a number of other parastatals.
The plans are, however, yet to take off even after the State sought to hire a chief manager in charge of transactions as it moved to unlock the stalled sale.
The NBK’s core capital stood at Sh2.34 billion at the end of September 2018, about four times thinner than the Sh9 billion it had in September last year, leaving it significantly in breach of regulatory capital ratios and therefore constrained in its ability to lend.
Although its liquidity ratio is above the minimum requirement of 20 percent, the NBK’s total capital to total risk-weighted assets stood at a deficiency of or negative 10.4 percent as at the end of the first nine months of the year.
The NBK’s core capital to total deposit liabilities stood at a negative or deficiency of 5.5 percent while core capital to total assets stands at negative 7.9 percent.
Faced with such a dicey situation, the lender has a constrained room to take in more deposits.
The Treasury has injected limited amounts of capital into the lender which has not been sufficient to put the banks in the right legal position on the ratios.
The NBK was compelled to continue running on constrained capital after the Treasury and National Social Security Fund (NSSF) missed own-imposed deadline of injecting Sh4.2 billion fresh capital.
The NBK said late last year that it was still awaiting the money that ought to have come in by end of September, according to the formal commitments made by the Treasury and the National Social Security Fund (NSSF) in March last year.
“In March 2018, the principal shareholders gave formal commitment for a comprehensive capital solution. The board notes that this process is ongoing,” said CEO Wilfred Musau.
“The capital injection will unlock and bolster the key pillars of our growth and place the bank in even a better probability path in the long-term.”
But the delay leaves the NBK in a precarious situation given that the same government has for long been mulling over merging the bank with DBK and Consolidated Bank.
The NSSF owns 48.1 percent of the NBK while Treasury holds 22.5 percent stake, making them the two principal shareholders.