How non-performing loans reversed NBK’s performance

Saturday April 02 2016

In the first nine months to September last year, National Bank of Kenya was seen to be on its way to make history in its 48 years of existence by posting one of its best annual performances.

Posting a net profit of $22.5 million, the now suspended chief executive Munir Ahmed said the transformative stance by the bank informed its bullish approach to eye the regional and the Chinese market that its peers had already ventured into.

Then everything came crumbling down. In the past three months of last year, the bank saw its margins wiped out, booking a loss of $11.5 million and pushing it to the red. How did this financial institution's “healthy” books get so messed up within 90 days to bleed a whopping $34 million?

Sources indicate that the bank’s non-performing loan (NPL) portfolio have skyrocketed in the final quarter of 2015 after the Central Bank of Kenya (CBK) rejected the bank’s version of its performance.

Property sales

Sources said CBK instead insisted on higher provisions for bad loans and removal of unrealised proceeds of property sales that the lender had booked.  


Efforts by The EastAfrican to get comments from the Bank’s chairman Mohamed Hassan proved futile as our calls to his cellphone went unanswered.

In October last year, and in the wake of Imperial Bank collapse, CBK governor Dr Patrick Njoroge said he would be demanding strict adherence to banking regulations and would not shy away from outing banks that do not conform.

“We see next year (2016) as the year or transition when we shall more aggressively supervise banks. We will be more open to exposing any irregularities in the banking sector to the public, mainly to protect banks from customer anxiety,” Dr Njoroge said.

The steep rise in loan impairment costs raises fears that the bank could have been suppressing and reclassifying its NPLs before the coming into office of Dr Njoroge, who has demanded close scrutiny of banks financial statements. The shocking turn of events at the bank puts focus on the banking sector and possible breach of corporate governance.

In its financial results released last week, the bank emerged as the most inefficient listed lender at the Nairobi Securities Exchange as its performance was weighed down by poor income, a jump in loan loss provisions and accelerated costs.

The bank's cost to income ratio rose to 78.2 per cent up from 70.2 per cent, way above the industry average of 47.4 per cent.

The bank attributed the loss to a sevenfold rise in impairment charges that saw its non-performing loans rise to $32 million.