Bad debt load sinks National Bank into Sh1.2 billion loss

The troubled National Bank of Kenya Thursday reported its biggest loss in eight years. The shocking Sh1.2 billion full-year loss for the year ended December 2015 kicked the lid off the depth of bad loans it dished out in the past year.

The loss comes just three months after it reported a Sh2.25 billion profit for the nine months of the same year, a result that was widely celebrated by the bank’s managers as its best performance in its 48-year history.

But the latest slide past the red line now raises questions as to whether the bank’s books really reflected the true picture of the state of the accounts.

The shocking performance is set to eat away the gains the bank had made in the past decade and a slap on the face of its shareholders, who had to go for years without dividends as part of its turn-around plan.

This is also the first loss in over eight years, in a period where the bank has reported on average Sh1 billion in profits and above. The best year was 2010, when it reported Sh2 billion in net profits.

The lender took a beating after its gross non-performing loans rose by a massive Sh4.5 billion to hit Sh11.7 billion for the year ending December 2015. This is a 62 per cent increase from the Sh7.2 billion it had in non-performing loans in a similar period in 2014.

“The bank has identified the non-performing loans and has taken a series of steps to manage recovery of the said position,” the bank said when it issued a profit warning, a day before it reported its latest results.

Despite the loss, the bank grew its total assets to Sh125 billion in 2015, up from the Sh123 billion it reported in the previous year. It also grew its interest income to Sh12.2 billion, up from Sh10.6 billion.

Huge Expenses

But its expenses grew at a much faster pace than the interest income, after it spent a total of Sh11.1billion, up from the Sh7.5 billion it recorded in the previous year.

The results come days after the bank sent home six top executives among them its managing director Munir Sheikh Ahmed to pave way for an internal audit.

The bank has launched investigations, being supported by the Central Bank, into what is described as ‘breach of fiduciary duties and failure to adhere to corporate governance rules’. The audit is expected to shed light as to why the bank had to increase its provisions for bad debts and just how big the defaults are.

The bank did not name the five managers affected but insiders say there have been changes in the Corporate Institutional & Business Banking, headed by Mr Boniface Biko.
Other exits have been in the office of the Chief Risk Officer, headed by a Mr George Jaba as well as the ICT department.

Wilfred Musau, the bank’s director, retail and premium banking, took over as acting managing director pending conclusion of the audit.
Workers who own almost half of the bank through the National Social Security Fund (NSSF) and taxpayers who own the bank through Treasury are set to be the biggest losers in the trouble facing the bank given that they control majority of the shares of the bank.

This is after the directors of the bank failed to declare any dividends following the poor performance.

As at the end of 2014, workers through the National Social Security Fund (NSSF) were the biggest shareholders in the bank, controlling 134 million shares or a 48.1 per cent stake.