KCB Group Plc has injected Ksh 5 billion into the National Bank of Kenya (NBK), to unlock its market potential it said on Thursday.
The capital injection is part of KCB 100% acquisition offer of the ordinary shares of NBK.
“In addition to enabling NBK to comply with capital adequacy requirements, the injection bolsters NBK’s financial resources,” the lender said.
The lender had initially estimated a capital injection of up to KSh7.5 billion.
NBK, now a subsidiary of KCB Group, posted a KShs 675 million in profit before tax for the period ending September 30, 2019, representing a 45% increase over a similar period in 2018.
Operating income for the period stood at KShs 6.0 billion, a 7% increase from KShs 5.6 billion over the same period in the previous year.
Total expenses, however, increased by 4% year-on-year to KShs 5.4 billion, mainly driven by increased loan loss provisions. Operating expenses excluding loan provisions remained relatively flat at KShs 5.4billion
Customer deposits, reduced to KShs 82 billion as at September 30, 2019 compared to Kes 93 billion over the same period in 2018, driven by reduced customer flows and tight liquidity in the market. Net loans & advances declined by KShs 150 million to KShs 47.8 billion over the same period issued due to recoveries collections made on existing loans.
Total assets dropped marginally by 5.0% to Ksh107.2 billion compared to KShs 112.45 billion in the same period last year
EFG Hermes Kenya Ltd, forecast KCB’s Return on Equity (ROE) to improve from 21.9% in FY18 to 22.5% in FY24e (and 24.9% in FY23e). They also estimate it will report earnings Compound annual growth rate (CAGR) of 16.2% between FY18-24e.
“While we remain negative on the bank’s acquisition of NBK, we think the rate cap repeal will enable KCB to absorb potential restructuring costs without significantly impacting profitability,” they note in their Year Book 2020.
“We expect that with the injection, NBK will be well-capitalized to continue its operations separately. KCB Group’s profitability, on the hand, will be affected as it cleans up NBK’s books. However, we expect the rate cap repeal will help it absorb the restructuring costs that will arise,” comments Cytonn Investments.
EFG Hermes Kenya has named Equity Group Holdings Plc and KCB Group Ltd. among banks and East African Breweries Ltd. as its top stock picks for the year.