National Bank pushes Treasury to approve its rights issue

The State-owned National Bank of Kenya (NBK) expressed optimism that the National Treasury will give a nod to its planned rights issue in the course of this year. This is to unable it increase its capitalisation levels, size of the loan book and improve on profitability.

In order to meet the new capitalisation requirements introduced by the Central Bank of Kenya (CBK), directors of the bank have decided not to declare any dividends to shareholders, for the financial year ended December 31, 2014.

"The year's profits would be used to meet the regulatory capital that came into effect in January this year," said Mohammed Hassan, NBK Board Chairman yesterday while explaining to shareholders why the bank had not declared any dividends. This was during the 46th Annual General Meeting (AGM) at Safari Park Hotel Nairobi.

Although NBK applied for approval to do a rights issue that would have raised its share capital levels, Treasury has been dragging its feet in giving the necessary approval despite a nod from CBK and the Capital Markets Authority. "We are aggressively lending and that is why we need capital. At this moment, we do not have this capital and that is why we need a rights issue," said Hassan.

Although players in the banking industry have been restructuring their operations, including laying off staff over the past two years, NBK has been unable to do this due to lack of enough cash.

"We cannot afford to offload staff due to lack of cash. While NBK was a top tier bank some 19 years ago, it has since dropped from this position," Munir Sheikh Ahmed, NBK Managing Director and Chief Executive Officer told shareholders.

NBK recorded an operating profit of Sh2.4 billion, 34 per cent up from Sh1.8 billion posted the previous year. Loans and advances to customers grew to Sh65.6 billion, an increase of Sh26.1 billion, translating to a 66 per cent year on year growth. Customer deposits grew from Sh78 billion to Sh104.7 billion.

Sources in the banking industry confided to The Standard that there was a plan to consolidate several State-owned banks, especially those with weak balance sheets and huge bad loans portfolio into one. "This could explain reluctance to approve request by NBK to do a rights issue," said a highly placed source in the industry.

But NBK top management insists that the bank is on the right path, two years into its transformation strategy. "We are now a healthy and growing business with better customer focus, efficient and gaining momentum towards becoming a top tier bank," Ahmed said.