Consolidated Bank seeks fresh capital as losses eat into liquidity

Consolidated Bank is now looking for an investor to inject additional capital after a series of losses depleted its capital.

Yesterday, the State-owned lender disclosed that it has been consulting with the National Treasury to seek ways of recapitalising to give it strong muscles to underwrite bigger businesses.

“On the basis of these consultations, it has been agreed that the bank seeks a strategic investor to inject additional capital in the business. There is a strong investor interest in the bank and we look forward to implement this initiative in the first half of 2017 upon securing all requisite approvals,” said the bank.

FINANCIAL RESULTS

The development comes in the wake of another frustrating nine months of trading in which the bank soaked in a net loss of Sh203.5 million, according results signed by the bank’s Chief Executive Thomas Kiyai. In a similar period last year, it had escaped with a marginal profit of Sh16 million.

This has pushed its accumulated losses to Sh739.3 million to condemn shareholders’ funds to another low of Sh1.4 billion as dividend dry spell continues.

For the first time, the bank has failed to meet Central Bank’s threshold of liquidity. Its liquidity ratio dropped to 19.7 per cent against the minimum statutory ratio of 20 per cent. The ratio is used to gauge a bank’s soundness in meeting short-term cash requirements.

This brings to three the number of key ratios that the bank has failed to satisfy in its September results. In the third quarter ended September 30, 2016, its core capital shrunk by 20 per cent to Sh880.2 million against the minimum requirement of Sh1 billion.

Its core capital to total risk weighted assets ratio, which measures a bank’s ability to absorb reasonable amount of risk on behalf of depositors as well as gauge its ability to avoid insolvency, has dropped to 6.2 per cent. This is against the required minimum of 10.5 per cent.

The investor will also have to help it deal with total capital to total risk weighted assets ratio that is currently at 7.8 per cent against the minimum threshold of 14.5 per cent.

In the period under review, the bank defied industry trend to cut its non-performing loans (NPLs) by almost half. Unlike in September last year when it had NPLs of Sh3.2 billion, it has cut that to Sh1.8 billion.
As a result, it was able to cut its bad loans provision by 43 per cent to Sh243 million from Sh424 million that had been provided for last year.

This helped push down operating expenses by 8.4 per cent to Sh1.28 billion. Its interest income reduced marginally, by 2.44 per cent to Sh1.32 billion, even as customer deposits dropped by 1. 76 billion to stand at Sh8.66 billion. Interest paid on holding the deposits rose by 10.7 per cent to Sh486.7 million, a pointer that it may be sitting on expensive deposits.

Since its incorporation on December 7, 1989 by bringing together nine insolvent lenders, the going has not been easy for the bank in which National Treasury has 78 per cent stake.
National Social Security Fund has five per cent stake, while other state corporations own the remaining 17 per cent.