KCB Group has advanced the National Bank of Kenya a Sh3 billion long-term loan to help the subsidiary meet its minimum capital requirements.
The Nairobi Securities Exchange-listed firm made the disclosure in its latest annual report.
“In Kenya, the group injected Sh5 billion into National Bank of Kenya, the subsidiary the group acquired in 2019. In 2021, KCB has increased the capital in NBK via tier-II debt of approximately Sh3 billion to enable the subsidiary meet the capital adequacy requirements and also to bolster its resources,” the lender says in the report. The NBK had continued to breach statutory capital levels despite receiving the initial equity capital support of Sh5 billion from KCB in December 2019.
The breaches had constrained NBK’s capacity to take more deposits and expand its loan book.
NBK’s core capital to total risk-weighted assets stood at 8.7 per cent in the year ended December, 1.8 percentage points below the statutory minimum of 10.5 per cent.
Total capital to total risk-weighted assets was 10.3 per cent against the set threshold of 14.5 per cent, a gap of 4.2 percentage points.
The lender’s core capital-to-capita deposit ratio stood at 6.2 per cent, trailing the minimum requirement of eight per cent by 1.8 percentage points.
KCB says the increase in NBK’s capital through the Sh3 billion loan, together with recoveries of bad debt, will alleviate the subsidiary’s capital constraints experienced in the past and position it for growth into the future.
NBK reported Sh177.7 million net profit in the year ended December, reversing a net loss of Sh336.9 million a year earlier.
The subsidiary will continue to operate independently but its systems will be linked with those of the parent company to boost efficiencies, customer service and risk management.
“We are also committed to the back-office integration with the NBK which shall remain a separate legal entity serving its own target market,” KCB said.
NBK’s recapitalisation is part of what prompted KCB to cut its dividend payout in the review period.