National Bank is turning to Kenya’s State-run pension scheme for a Sh3 billion shareholder loan to shore up the lender’s capital ratios, which has fallen below regulatory requirements.
The mid-sized listed lender said the credit line from the National Social Security Fund will be taken in as Tier II capital and allow the bank to grow loan book and take in customer deposits.
The bank’s chairman Mohamed Abdirahman Hassan last week said the three-year impasse on a planned Sh13 billion rights issue had forced the lender to seek alternative options.
“This is an interim measure. Preference was to get the funds from one of our shareholders as we continue to pursue the rights issue,” Mr Hassan said after NBK’s annual general meeting.
The NSSF funding deal is expected to close in three months, the chairman said, but he could not disclose details such as interest rate, tenor and possible conversion of the debt into equity.
“We’re working on finer details,” he said.
NBK’s total capital to total risk-weighted assets ratio stood at 13.1 per cent against as at March 2016, which is 1.4 percentage points below the Central Bank of Kenya statutory minimum of 14.5 per cent.
NSSF is the largest shareholder at NBK with a 48.05 per cent stake while the Treasury directly owns 22.5 per cent of the bank.
On Friday 3rd June , shareholders passed a resolution allowing the board to “exercise powers and options of the company towards raising additional capital,” paving the way for NBK to formally engage NSSF.
NBK’s decision to go for a shareholder loan as capital rekindles memories of 2003 when the bank converted long-term loans totalling Sh5.675 billion belonging to NSSF and government into equity by creating preference shares.
The bank’s cash call received shareholders’ approval in June 2013, but the capital raising plan ran into headwinds after the government refused to take up its rights and differences on the fate of the preference shares.
Treasury, which holds 900 million preference shares, wants them converted to ordinary stock but NSSF favours redeeming its 235 million shares at a premium of 25 per cent.
National Bank’s net profit for the first three months of this year declined by a third to Sh334.6 million from Sh495 million in March 2015, due to a decline in non-funded income and swelling expenses.