BANK MERGER

KCB likely to inherit bad debts in National Bank takeover

In Summary

The offer is on a per value of Sh5 for each of National Bank shares.

As of December 31, 2018, the gross non-performing loans of NBK stood at Sh31.46 billion compared to KCB Sh32.69 billion.

KCB chief executive Joshua Oigara at the release of the bank second quarter financial result in Nairobi on August 4./ENOS TECHE.
KCB chief executive Joshua Oigara at the release of the bank second quarter financial result in Nairobi on August 4./ENOS TECHE.

KCB Group could be required to inject as much as Sh31.46 billion in National Bank of Kenya to service the state lender's bad debts.

Financial analyst Alykhan Satchu said this will be as a result of capital shortage in NBK and failure by its shareholders to raise capital.

The capital injection will be part of KCB 100 per cent acquisition offer of the ordinary shares of NBK.

The offer is on a per value of Sh5 for each of National Bank shares.

However, despite the takeover plans, NBK management said they are still committed to improving the banks capital position to unlock its market potential.

As of December 31, 2018, the gross non-performing loans of NBK stood at Sh31.46 billion compared to KCB Sh32.69 billion.

While the NPL's difference is small, net customer loans and advances to customers between the two are at 99 per cent difference with KCB having Sh455 billion and NBK posting Sh47 million.

In the financial year ending December 31, 2018 NBK received Sh98 million in deposits lower than KCB's Sh537.8 million.

When releasing the results two weeks ago, NBK boss Wilfred Musau said they plan to dispose investments in non-core assets, and carry out cost reduction initiatives to restore capital and profits. Both KCB and NBK are listed on the Nairobi Securities Exchange.

Yesterday, NBK shares shot up 25.28 per cent to Sh5.50 from Sh4.30 recorded on Wednesday hours after the announcement on the takeover. KCB shares gained 0.11 per cent to close at Sh45 per share.

In a press statement, NBK confirmed being served with the takeover notice to acquire it shareholding.

The offer is subject to shareholder and regulatory approvals. KCB proposes to make the acquisition through a share swap of 10 ordinary shares of NBK for every 1 ordinary share of KCB.

“The proposed transaction acquisition will accelerate the Group’s growth ambitions and enhance value to all stakeholders,” KCB group CEO Joshua Oigara said.

If successful, this will be the second bank KCB group is taking over after Central Bank of Kenya accepted the final offer from the bank to takeover Imperial Bank Limited (in receivership).

In the period ending December 31, 2018, National Bank reported a 98.3 per cent drop in profits.

The bank made Sh7.007 million in profit compared to Sh410.78 million made within the same period in 2017.

During the same period, Kenya Commercial Bank made a Sh24 billion net profit, a 21.8 per cent jump from Sh19.7 billion in 2017 on lower costs and sustained incomes.