Otiato Guguyu
The cost of recapitalizing KCB Bank Kenya doubled over the last year indicating the huge impact of loan defaults and accumulating losses at the lenders recent acquisitions.
KCB Group plans to borrow $200 million (Kes26.5 billion) to help rebuild the balance sheet of its Kenyan banking subsidiary up from $100 million, about Kes14.5 billion the bank announced last year.
KCB Kenya closed December 2023 with both core and total capital ratios having a buffer of 1.3 percent-age points, a thin headroom com-pared with five years earlier when the headroom was 5.1 and 3.1 percentage points above the required minimum.
The declining capital adequacy has been linked to the acquisition of the DR Congo subsidiary, and Trust Merchant Bank (TMB), and National Bank of Kenya. This underscores the risk of expansion on capital.
KCB which had sunk about Sh14 billion into NBK since acquiring it in December 2019, is letting it go about four years after the acquisition in a development that underlines the pressure that the loss-making unit had brought upon the lender.
NBK has accumulated losses increased from Kes4.3 billion to Kes6.9 billion underscoring the black hole that was the acquisition made less than five years ago.
KCB Group Ceo, Paul Russo told Business Daily keeping NBK would have required KCB to inject in between Sh5 billion and Sh8 billion as additional cash to comply with Central Bank of Kenya (CBK) minimum capital ratios and also support the operations of the lender.
The thin capital buffer for KCB Kenya was a "massive concern" to the board and shareholders. This in fact became the reason the group has had to skip dividend payout for the first time in 21 years in order to conserve capital and boost capital levels for KCB Kenya.
Dud loans crisis
The cost pressure has weighed down on the lender at a time when bad loans are also sucking out capital from the banking sector.
In the just released KCB Group results, the Kenyan unit saw non-performing loans jump 28 percent to Kes166.2 billion that forced the lender to triple loan loss provisions to Kes25 billion.
This saw the subsidiary net profit fall 26.8 percent to Kes25.4 billion in the year ended December 2023, down from Kes34.7 billion.
Lender of last resort
The pressure on KCB, Kenya’s largest lender by asset is indicative of the banking sector which has lately has increasingly relied on the regulator for support.
In 2022 Central Bank supervisory data revealed the number of struggling lenders jumped from 9 to 13, facing capital adequacy challenges on accumulated losses and market losses on discounted insider loans.
Last year, KCB Bank Kenya tapped Kes44 billion in deposits from the Central Bank of Kenya up from Kes37.2 billion signaling troubled times for the lender and the sector at large.
It portends even worse for smaller lenders who rely on giants such as KCB Bank for capital support.
Small lenders have had liquidity challenges for a long while as larger banks deny them funds or charge a premium on risk. Now, however, they are facing higher cost of funding as they compete for deposits chasing higher returns in the current high interest rate environment while struggling to access liquidity in a tight market.
This phenomenon has the potential to disrupt their ability to meet customer demands and adequately support economic growth through lending to businesses and individuals.
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