NBK falls short of Central Bank's cash ratio

The regulator's minimum capital adequacy ratio was set at 14.5 per cent but NBK had 14.3 per cent.

Paul Russo
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In Summary

•Customer deposits grew to Sh 106 billion, as net loans and advances rise by 21% to Sh 67 billion.

•During the year, net interest income grew by 18 per cent from the previous year to Sh 8.3 billion.

The National Bank of Kenya (NBK) fell short of Central Bank of Kenya's capital adequacy ratio, prompting parent firm KCB Group to come to its aid. 

This, despite the lender posting a 10-fold growth in profit to Sh 1.1 billion during the year under review compared to Sh177.7 million the previous year. 

The regulator's minimum capital adequacy ratio was set at 14.5 per cent but NBK had 14.3 per cent. This is, however, an improvement from 10.3 per cent in 2020.

To regularise this, KCB Group approved the conversion of subordinated debt (Sh 3.45 billion), which was classified as Tier II capital to equity.

The conversion resulted in the bank complying with regulatory ratios with regard to core capital. 

The growth in profits represents a 431 per cent increase from 2020, driven by increased income from loan interest and foreign exchange trading, coupled with lower loan loss provisions.

During the year, net interest income grew by 18 per cent from the previous year to Sh 8.3 billion.

This was attributed to interest income, which grew by 26 per cent to Sh 12.2 billion due to increased volumes of loans and advances as well as improved level of recoveries.  

“Our strong performance was also supported by improving macro-economic environment and improved quality of credit. We maintained a strong balance sheet growth as evidenced by increase in customer deposits and 21 per cent growth in customer loans and advances,” said managing director Paul Russo.

Operating income increased by 15 per cent to Sh 10.2 billion while low levels of credit provisions resulted in an increase in profit before tax by 330 per cent.

Interest expense grew by 47 per cent to Sh 4.0 billion due to increased transactions on the revamped digital channels, bank deposits as well as subordinated debt to shore up the capital requirements of the bank.

Operating costs rose by seven percent to Sh 7.8 billion from 2020 driven by increased investments in cybersecurity and strategic bank projects.

The lender further expanded its balance sheet with total assets growing by 16 per cent to Sh 146 billion, majorly from net loans and advances, which were up by Sh 12 billion to Sh 67 billion.

The growth in assets was attributed to corresponding increase in customer deposits by Sh 6.7 billion to Sh 105.8 billion and deposits from banks by Sh 8.1 billion to Sh 21.5 billion as at December 31, 2021.

National Amanah, franchise of the lender was recognised for the deposits sustained at the high levels due to increased inflows from both existing and new clients in corporate and retail banking businesses.

NBK is implementing other internal strategies aimed at raising organic capital including rigorous bad debt collection and balance sheet growth to boost profitability which will ensure full compliance with the capital ratios.

The bank continues to maintain a high liquidity profile of 42 per cent placing it in a strong position to continue supporting its customers during the ongoing economic recovery following the COVID-19 pandemic.

According to the bank’s managing director, NBK is on a steady growth trajectory and anticipates continued growth by supporting its clients and finding opportunities within the current environment.

He said that the bank has a strong capital and liquidity base to support the growth of the business, especially through their digital offering.

"We have, therefore, embarked on a calculated strategy towards ensuring that we provide customer-centric and timely solutions to our client segments especially in the SME sector,” said Russo.

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