KCB Group has converted a Ksh3.45 billion long-term loan it had given to the National Bank of Kenya (NBK) last year into equity to help NBK meet its core capital ratios after years of default.
This brings the total equity financing that KCB has put into NBK to Ksh 8.45 billion, after making an initial investment of ksh 5 billion in December 2019 when it was buying the subsidiary.
KCB acquired NBK through a share swap in which it issued 147.3 million shares currently valued at Ksh6.5 billion to the target investors and later made the additional capital injection in the newly acquired subsidiary.
“During the year, the parent company KCB Group approved the conversion of subordinated debt (Ksh 3.45 billion), which was classified as Tier II capital to equity. The conversion resulted in NBK complying with regulatory ratios with regards to core capital as of 31 December 2021. The bank is implementing other internal strategies to raise organic capital, including rigorous bad debt collection and balance sheet growth to boost profitability, ensuring full compliance with the capital ratios.”
NBK boosted its capital buffers through improved profitability in the last financial year, having raised net earnings of Ksh 1 billion from Ksh177.7 million posted in 2020. Raising its core capital to total risk-weighted assets, to 12.9 % by the end of last year, 2.4 % points above the statutory minimum of 10.5 %.
The lender’s core capital to total deposit ratio stood at 9.2 % compared to 6.2 % in 2020, exceeding the minimum requirement of 8% by 1.2 percentage points.
Consequently, National Bank also met the total capital to total risk-weighted assets ratio threshold of 14.5 %, having fallen short in 2020 at 10.3 %.
Compliance with this particular ratio came only after the lender added back expected credit loss provisions to capital in line with a 2018 Central Bank of Kenya guidance note on the implementation of the International Financial Reporting Standards (IFRS 9).
Without the CBK waiver, NBK’s total capital to total risk-weighted assets ratio would have stood at 14.3 % by the end of last year, 0.2 percentage points below the statutory minimum.
