Kenya Commercial Bank (KCB) raises Sh7.5b to shore up capital cover

Eastern Africa’s largest bank by asset base, Kenya Commercial Bank (KCB), has completed raising supplementary capital that lowers depositors’ risk exposure.

The bank reckons that the new tier II capital raised provides enough headroom for KCB to meet regulatory requirements.

During the release of third quarter results at Kencom House in Nairobi, group CEO Joshua Oigara told the press that the bank had raised Sh7.5 billion giving it a strong financial base to start out in the next financial year.

“The bank has completed raising tier II capital and the exercise has been closed. We were initially targeting to raise $100 million (Sh10 billion). We believe we now have a good base for 2017,” said Oigara.

Raising more tier II capital will help boost the total capital to total risk weighed assets ratio. A strong ratio reflects the extent by which a bank capital is able to cover risk of loss from loans. It is therefore used to offer reasonable protection to depositors.

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Cash deal

KCB group Chief Finance Officer Lawrence Kimathi said the bank raised the money through a negotiation with a development finance institution and the money is expected in its coffers soon.

“All documentation is done, signed and we are expecting the money this week,” Kimathi said.

With the fresh capital injection, Oigara said this also means shareholders should now look forward to dividends next year.

According to Kimathi, the bank is comfortable with the 4.2 percentage points headroom on core capital to total risk weighed assets. By close of September, against the regulator’s minimum requirement of 10.5 per cent, the bank has now 14.5 per cent.

However, on total capital to total risk weighed assets that is connected to tier II capital , the bank has 16 per cent against the minimum statutory requirement of 14.5 per cent.

With just a gap of 1.5 percentage points, Kimathi admitted that it is thin and the bank was addressing it.

“Our headroom is not big since our capital structure is heavily weighted on equity. We will be getting tier II debts into our balance sheet so that by Q4 (fourth quarter) we have a good mix of debt and equity,” he said.

However, year-on-year borrowed funds declined by 29 per cent to Sh14.7 billion, while its core capital grew by Sh5.65 billion to Sh60.3 billion.

Premised on this improved position, Oigara reiterated his position in August that plans for raising tier I capital through a rights issue remains shelved.

The bank has had major investments, including migrating into new core banking capital capable of handling in excess of 30 million clients across the platforms.

In addition, Oigara disclosed that the group is investing in completely new platform for mobile money services and he expects it to be operational in six-month time.