The multi-billion shilling takeover of the National Bank of Kenya (NBK) by Kenya Commercial Bank (KCB) appears to be headed to the rocks as a committee of the National Assembly has opposed the move.
The recommendation against the move is by the Finance and National Planning Committee, chaired by Kipkelion East MP Joseph Limo, that has been investigating the proposed acquisition.
Majority leader and Garissa Town MP Aden Duale tabled the committee’s report in the House on Wednesday.
The recommendations will, however, require the approval of the House.
The committee has recommended that NBK’s principal shareholders – the National Treasury (22.5 percent) and the National Social Security Fund (NSSF) (48.05 per cent), reject KCB’s offer to acquire 100 percent shareholding, the minority shareholders and other shareholders.
It wants Treasury to seek alternative ways to fund the lender despite fears of collapse if the planned takeover falls through.
The need for an alternative financier, according to the report set for debate when the House resumes from a long recess starting Thursday, is to ensure the bank is compliant with the Banking Act’s capital ratios so as to continue lending and taking more deposits.
It is also the view of the committee that NBK is the stronger bank with 86 branches across the country.
“The main challenge the bank is facing it that of core capital and the total risk: weighted assets ratio, which is 2.4 per cent, below the minimum statutory requirement of 10.5 per cent,” the committee report says.
Suspended Treasury Cabinet Secretary Henry Rotich told the Finance committee that the takeover presents an opportunity to avert the risk of NBK’s failure and prevent a banking sector crisis.
In terms of the core capital to deposits ration, the bank is operated at 2.2 per cent against a minimum prudential limit of eight per cent. This scenario has curtailed lending and deposit-taking.
The committee notes, “As far as liquidity ratios are concerned, NBK is performing well at 40.4 per cent as compared to KCB which is at 35.6 per cent.”
KCB gave an offer bid share price of Sh3.80 with NBK’s total value as Sh6 billion, against an independent valuation of a per-share price of Sh6.10 and a total value of Sh9 billion.
“The offer given by KBC does not reflect the fair value of NBK,” the report says.
The MPs further note that NBK is the principal collector of revenue for the Kenya Revenue Authority (KRA) hence it is a strategic government institution.
When the board of directors of the NBK appeared before the committee, it said the bank’s problems were due to lack of capital.
They also noted that operating below the capital ratios has constrained business growth.
Despite the fundamental limitations, the board has managed to steer the bank to improved profitability over the last three years while continuing to engage shareholders on the injection of additional capital.
The board explained that it has continued to engage key stakeholders to inject Tier I and II capital.
The board also strengthened management, established an independent risk and audit function, enhanced governance and revised key policies to embed robust risk management and control environment.