Kenya’s Treasury has deleted from its revised budget estimates a provision for Ksh5 billion ($51 million) it would have made from selling its rights in National Bank of Kenya and Mumias Sugar Company, a move that could delay plans by the two firms to raise additional capital.

The government had initially opted not to take up additional shares in the bank and sugar miller, and factored the Ksh5 billion ($51 million) it would have made as a result of the decision into financing part of the budget deficit estimated at Ksh566.95 billion ($5.78 billion) in the 2015/2016 fiscal year.

The budget proposals had been approved by Parliament. But the figure was deleted in the revised estimates tabled in Parliament last week by the chairman of the Budget and Appropriations Committee Mutava Musyimi, indicating that the government had either changed its mind or was yet to make a decision on the proposed share sale.

The Treasury, which controls 22.5 per cent shareholding (63 million shares) in National Bank, now says it is yet to make a decision to take up the additional shares allocated to it, despite budget proposals approved by Parliament that it would sit out of the issue.

“On NBK, we are yet to make a decision whether or not to convert our preference shares to ordinary shares first before considering taking up any rights issue,” Treasury Cabinet Secretary Henry Rotich said. 

Mr Musyimi said adjustments in the budget figures were made by the National Treasury and his committee was not given the reasons behind the changes.

“They (Treasury) are the ones who make proposals for us. What we are interrogating are Mr Rotich’s estimates,” said Mr Musyimi, the Member of Parliament for Mbeere South.

The government’s move now leaves the Ksh13 billion ($132.6 million) rights issue approved by shareholders to help the National Bank compete with its peers for big ticket projects across eastern Africa in doubt.

The bank created 1.2 billion non-cumulative preference shares of Ksh5 ($0.05) each in 2003 in an attempt to increase its share capital to Ksh9 billion ($91.83 million).

It was facing a financial crisis due to non-performing loans, prompting the government and NSSF to inject Ksh4.5 billion ($46 million) and Ksh1.1 billion ($11.22 million) respectively as a rescue package.

Holders of preference stocks are entitled to a fixed dividend payment but do not have voting rights.

National Bank is seeking to raise over Ksh13 billion ($132.6 million) through the cash call that was scheduled to be launched in the first quarter of this year but has delayed due to lack of approval from the government.

“Our stakeholders have all approved the issue. We are just awaiting government approval. In the event we get approval all other things will follow,” said Patrick Kinyua, manager in charge of marketing and corporate communications.

The delay in the approval of the issue has prompted the lender to look for other ways of raising money to shore up its capital requirements, including withholding dividends to shareholders and transferring a massive Ksh140 million ($1.42 million) worth of profit to general reserves through a bonus issue.

The bank created 28 million additional shares and allotted them to the ordinary shareholders in the ratio of one share for every 10 ordinary shares held.

“This is necessitated by the need to retain the profits of the year to meet the regulatory capital requirements as we await approval of the rights issue,” said Mohamed Hassan, the bank’s non-executive chairman.

The plan for the rights issue was endorsed by the shareholders in 2013.

NBK is seeking to grow its loan book but it is hampered by regulatory requirements which provide that a bank cannot lend more than 25 per cent of its core capital to a single borrower.

The bank’s core capital is now Ksh10.54 billion ($107.55 million)  meaning that it cannot lend more than Ksh2.63 billion ($26.83 million) to a single client.

The divestiture of the  Government from the bank is part of a wider parastatal reform programme seeking to ensure the state relinquishes ownership of non-strategic  commercial enterprises to private investors  to improve efficiency and productivity.

State-owned corporations have been blamed for low productivity while drawing a huge portion of the national budget.

NBK plans to issue up to 1.12 billion new shares  to the existing shareholders through the proposed rights issue.

The National Treasury together with the state-owned pension scheme — National Social Security Fund (NSSF) — hold preference shares in the Nairobi Securities Exchange listed bank.

As a result the two anchor shareholders have priority over other ordinary shareholders in the bank when it comes to dividend payments and compensation in the event of liquidation of the company.

NBK is hoping to join the league of big banks in 2017 in terms of capital reserves, deposits, assets and loan accounts.

The bank also aims to improve its competitiveness in retail, business, Islamic, corporate and institutional banking. 

Shareholding

Data from the Central  Bank of Kenya shows that only six large banks in Kenya had a market share of 52.4 per cent, 16 medium banks with a market  share of 39.1 per cent and 21 small banks for  the period ended  December  31, 2013.

These are Kenya Commercial Bank (KCB), Standard Chartered, Barclays, Co-operative, CfC Stanbic and Equity.

NBK’s pre-tax profit for the three months to March 31, 2015 increased 20 per cent to Ksh707.27 million ($7.21 million) from Ksh588.46 million ($6 million) in a similar period last year. 

Last year the bank’s profit declined 28 per cent to Ksh1.3 billion ($13.26 million) from the previous year’s (2013) Ksh1.81 billion ($18.46 million) with a restructuring cost of  Ksh1.12 billion ($11.42 million) eating into the bottom line.