Treasury gives Consolidated Bank KSh.500m injection

Consolidated BankThe Treasury has allotted 500 million shillings as additional capital injection to Consolidated Bank, enabling it to go ahead with its growth plans which had been hampered by capital inadequacy.

The supplementary budget figures tabled in Parliament by Finance Minister Njeru Githae showed the Treasury had allocated KSh. 605 million for government and public enterprises from which the government is expected to be the primary beneficiary.

Mr Githae had earlier said that the government would allocate the funds to the state-owned bank whose capital ratios had weakened due to growth in customer deposits and advances.

Joseph Njuguna, head of finance and administration at Consolidated Bank, said that they expected about KSh. 500 million from the government but had not received the amount. It is not known if the bank will also get the extra KSh.105 million provided for in the supplementary budget or whether it will be invested in other government ventures.

Mr. Githae said the Treasury would pump in additional capital in the bank which was operating by flouting statutory minimum capital requirements. But, he was non-committal about the amount as the Treasury was operating on limited funds among competing needs.

Consolidated Bank’s core capital to total deposits ratio, as at the end of September last year, had fallen to eight per cent, which is the regulatory minimum limit.

Mr Njuguna said by ploughing back earnings from its operations, the bank had complied with the statutory requirements. The core capital included shareholders’ paid-up shares, retained earnings, and 50 per cent of the un-audited after-tax profits.

The regulator requires banks to accept deposits up to eight times the shareholders’ input to ensure that the bank does not strain its finances. If this ratio is breached, the regulator could restrain the bank from collecting more deposits, implementing any expansion, or declaring dividends.

Consolidated Bank had requested the government, which is its majority shareholder, to invest KSh.1 billion in it but the Treasury had slashed the request by half, as it was faced with competing needs and limited funds.

The bank, which was formed in 1989 by amalgamation of nine insolvent banks, has relied on retained earnings to clear accumulated losses, but now requires additional capital to improve its business.

Last year, the bank raised KSh. 1.7 billion through the first portion of a KSh. 4 billion corporate bond that will boost the existing public confidence as it plans listing on the stock market.

The bond, which is looked upon as a medium-term loan in finance terms, did not contribute to the bank’s core capital and so it had to raise additional cash from the shareholders, i.e., the government.

The bank is one of the several government institutions which has been earmarked for public offer or sale to strategic investors for a long time, but the absence of a privatisation board, which had been recently appointed, was the deterring factor.

Clearing the accumulated losses in the middle of the last year made it easy for its listing on the Nairobi Securities Exchange which has been the preferred mode of privatisation by the banks’ board.

The other options of privatisation include invitation of strategic investors who could be tempted by the local banking industry performance or by a combination of the two methods.

In the nine-month period till September, Consolidated Bank registered a 22.6 per cent drop in profits to KSh. 116 million as compared to the same period last year.

In the one-year period between September 2010 and 2011, its advances have increased by 18.6 per cent to KSh. 9.98 billion while its deposits have grown from KSh. 10.8 billion to KSh. 13.2 billion.

The banking sector has reported a double-digit growth with the industry profits before tax recording KSh. 90 billion in the first 10 months of 2012.

Other banks such as Chase, NIC Bank, Standard Chartered, and CfC Stanbic have sought additional capital to help them in their growth strategies and meet the regulator’s minimum capital adequacy requirements. As the new guidelines will become effective from the beginning of the year, banks would engage themselves in further capital-raising activities as the statutory minimum ratios have been raised by 2.5 percentage points.

Image courtesy: FreeDigitalPhotos.net

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