Bank loan

KCB transforms a 3 billion shilling loan from the National Bank into equity

Companies

KCB transforms a 3 billion shilling loan from the National Bank into equity


Kenya Commercial Bank branch in Nairobi. FILE PHOTO | NMG

charlesmwaniki_img

Summary

  • The conversion brings the total equity funding that KCB has invested in NBK to 8.45 billion shillings, having invested 5 billion shillings when buying NBK in December 2019.
  • NBK has also bolstered its capital reserves on the back of improved profitability last year, having quintupled its net profit to 1 billion shillings from 177.7 million shillings in 2020.
  • KCB acquired NBK through a share swap in which it issued 147.3 million shares currently valued at 6.5 billion shillings to target investors.

KCB Group #ticker:KCB has converted a 3.45 billion shillings long-term loan it provided to the National Bank of Kenya (NBK) last year into equity, helping the subsidiary meet its capital ratios capital base after years of default.

The conversion brings the total equity funding that KCB has invested in NBK to 8.45 billion shillings, having invested 5 billion shillings when buying NBK in December 2019.

NBK has also bolstered its capital reserves on the back of improved profitability last year, having quintupled its net profit to 1 billion shillings from 177.7 million shillings in 2020.

KCB acquired NBK through a share swap in which it issued 147.3 million shares currently valued at 6.5 billion shillings to target investors and then proceeded to inject additional capital into the newly acquired subsidiary.

“During the year, the parent company of the KCB Group approved the conversion of subordinated debt (3.45 billion shillings), which was classified as Tier II capital to equity. The conversion allowed NBK to comply with regulatory Tier 1 capital ratios as of December 31, 2021.”

“The bank is implementing other internal strategies to raise organic capital, including rigorous collection of bad debts and balance sheet growth to increase profitability, which will ensure full compliance with capital ratios.”

NBK’s capital base to total risk-weighted assets, which stood at 8.7% in 2020, increased to 12.9% at the end of last year, 2.4 percentage points above the legal minimum of 10.5%.

The lender’s core capital to total deposit ratio stood at 9.2% from 6.2% in 2020, beating the 8% minimum requirement by 1.2 percentage points.

The lender also met the threshold for the total capital to total risk-weighted assets ratio of 14.5%, after being below in 2020 at 10.3%.

Compliance with this particular ratio only came about after the lender added back ECL provisions to capital in line with a 2018 guidance note from the Central Bank of Kenya on the implementation of international standards. financial reporting (IFRS 9).

Without the CBK waiver, NBK’s total capital to total risk-weighted assets ratio would have stood at 14.3% at the end of last year, 0.2 percentage point below the legal minimum.

IFRS 9 standards obliging banks to provision for expected loan losses rather than those already incurred, reduce their profitability and erode their capital.

The CBK therefore gave banks five years (from 2018) to build up their capital, thus sparing weaker lenders from having to raise new capital immediately.

[email protected]