What You Ought To Know About NBK’s Woes

National Bank of Kenya (NBK) is battling a range of challenges, including soaring toxic loans and shrinking capital base. The weak capital base is jeopardising the bank’s ability to lend, which in turn puts its interest income at risk.

Several analysts have recently cut their price estimates on National Bank stock, with some setting a price target as low as Ks2.70. But shares of National Bank rose more than 6% today to close at Ks7.05.

Rights issue
Though National Bank is facing capital shortage problem, the bank is sitting on an opportunity to raise Ks13 billion through a rights issue. Shareholders three years ago gave National Bank the green light for the right issue. 

However, a conflict between the bank’s largest shareholders has delayed the rights issue. The government, through the Treasury, owns 22.5% of National Bank, while the National Social Security Fund (NSSF) is the majority shareholder in the bank with 48.05% stake. The Treasury and NSSF have been wrangling over National Bank’s right issue, leading the Treasury to decline its rights.

The recent change in lending interest rate law has further seemed to complicate the matter for National Bank as it means limited room for lenders to grow their interest income. The law limits the interest rate banks can charge on loans. National Bank posted net interest income of Ks4.4 billion in 1H2016, up 16.9% from the same period last year.

 

Will government end the rights issue stalemate?  

The chart above shows National Bank’s annual net income in the last four years to 2015. The bank’s fiscal year runs between January 1 and December 31.

With the general election approaching next year, the government could be under pressure to end the stalemate and pave the way for National Bank to raise the Ks13 billion it needs.

But besides raising additional capital, National Bank will need to diversity its revenue sources to mitigate the impact of the interest rates cap and survive stiff competition in Kenya’s credit market. Several lenders have recently announced staff layoffs and operations automation to try to pare expenses and boost earnings in the regime of restrictive interest rates.

In its most recent financial performance update, National Bank said it posted EPS (earnings per share) of Ks1.01 in the first half of 2016, or 1H2016, down from EPS of Ks5.62 in the like period last year.

National Bank recently confirmed Wilfred Musau as permanent CEO. Musau was tapped as interim CEO of the bank following the ouster of former CEO Munir Sheikh Ahmed.