Cash-strapped Consolidated Bank eyes Sh2.5bn injection

Consolidated Bank is looking for a strategic investor to pump in more than Sh2.5 billion to plug a capital hole that has worsened its loss, even as the state claims it intends to merge public lenders.

The lender has reported an after-tax loss of Sh203 million for the nine months ended September compared to a Sh16 million profit in a similar period last year.

Capital deficiency has forced the bank to go slow on business growth while expenses continue to rise resulting in more losses.

The National Treasury, which is the majority shareholder with a 78 per cent equity, has broken several promises to inject additional capital into the bank, most recent being failure to support a rights issue that it had approved.

“We have agreed (with Treasury) to seek a strategic investor. We are in the process of seeking necessary approvals,” bank chief executive Thomas Kiyai told the Business Daily in an interview.

The management estimates that Sh2.5 billion will be sufficient to recapitalise the bank and give it headroom to grow.

Loses have pushed Consolidated’s core capital below the statutory Sh1 billion at Sh880 million, which is 6.2 per cent of its risk-weighted loan book and lower than the mandatory 10.5 per cent.

Its total capital to total risk weighted assets ratio is also below the required minimum of 14.5 per cent at 7.8 per cent.

Recent capping of interest rates has made issuance of the second tranche of the bank’s corporate bond unviable.

READ: Consolidated Bank’s rights issue flops, costs it licence

Consolidated was paying investors 13.5 per cent for the bond, which it cannot lend at a price above 14 per cent.

Management was non-committal on whether the bank will remain majority State-owned after the planned sale noting the level of dilution will depend on whether other shareholders will also inject some capital.

Other shareholders include National Social Security Fund (five per cent), the defunct Kenya National Assurance (4.3 per cent), the Kenya National Examination Council (1.5 per cent), Kenya Pipeline (1.6 per cent) and National Hospital Insurance Fund (1.3 per cent).

The Treasury’s decision to allow Consolidated to look for a strategic investor looks likely to scuttle plan to merge the bank with National Bank and Development Bank, both majority owned by government.

The government earlier in the year appointed a consultant to advice on merging the three banks.

READ: Treasury settles on merging NBK and two other banks

International audit firm PriceWaterhouseCoopers had previously advised the bank be privatised through an initial public offering, now made unviable by the recent loss making. A company is required to have recorded profits for the last three years before listing.

Consolidated Bank has retained a loan book of Sh9.1 billion while its deposit base declined by Sh600 million in the three months to September to Sh8.6 billion.

The bank’s bad book shrunk by 42 per cent breaking an industry trend that has seen its peers report a pile-up of non-performing loans.

Its bad loans are Sh1.8 billion, down from Sh3.1 billion, which management attributed to improved debt collection. Mr Kiyai disclosed the lender, who has an elevated cost to income ratio of 115 per cent — attributed to low revenues — plan to implement cost-cutting measures, which usually includes staff costs, in the first quarter of next year.

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