KCB Group is set to inject up to Sh3 billion of additional capital into National Bank of Kenya to help the subsidiary comply with capital requirements and expand its business.
NBK remains in breach of capital adequacy ratios even after receiving Sh5 billion capital support from KCB in December.
“When we acquired NBK, we estimated we will provide the subsidiary with capital of Sh7.5 billion to Sh8 billion,” said KCB chief executive Joshua Oigara.
“We will soon give the balance of Sh2.5 billion to Sh3 billion,” he said, adding that the cash could be remitted by the end of this second quarter (June).
Mr Oigara added that the actual capital support to NBK will depend on several factors, including the subsidiary’s ability to recover bad loans. The NBK is also expected to take a hit in terms of defaults from the economic impact of the coronavirus, he said.
NBK results for the year ended December shows that the lender fell short of the required capital to back its lending and deposit-taking activities.
This was despite factoring in boosters afforded by the Central Bank of Kenya’s directive allowing lenders to add expected credit loss provisions back to capital.
NBK core capital to total deposit ratio stood at 7.3 percent as of December, 0.7 percentage points below the minimum requirement of eight percent.
Its core capital to total risk weighted assets was 10 percent, 0.5 percentage points lower than the statutory minimum of 10.5 percent.
Total capital to total risk weighted assets stood at 11.7 percent against the set threshold of 14.5 percent, a gap of 2.8 percentage points
KCB, on the other hand, met all the capital requirements but at reduced levels compared to those recorded in the prior year.
NBK’s capital shortfall saw it shrink its business by significant margins in the review period.
Its loan book dropped 3.9 percent to Sh45.8 billion while deposits fell 12 percent to Sh86.9 billion.
The bank made a net loss of Sh302.2 million, reversing a Sh7 million net profit a year earlier.
The loss was largely the outcome of loan loss provisions rising 10.7 times to Sh1.9 billion.
The higher provisioning was despite the stock of gross bad debt declining 19.9 percent to Sh25.1 billion.