Consolidated Bank: We are no longer lending recklessly

Consolidated Bank Chief Executive Officer Thomas Kiyai

Consolidated Bank, which has operated without a licence for months now, says it is no longer in breach of capital requirements set out by the Central Bank of Kenya (CBK).

Reacting to last month’s parliamentary report, the bank’s chief executive says the lender has moved to deal with the issues raised by legislators. “We are not recklessly lending and we are not in breach at the moment. On the issue of the licence, our understanding is that when we apply for a licence you assume you have it until you are advised otherwise,” Chief Executive Officer Thomas Kiyai told The Standard in an interview.

The Banking Act requires that any advances, credit facilities, financial guarantees or any liabilities incurred on behalf of any person should not at any one time exceed 25 per cent of the bank’s core capital.

Public Investments Committee (PIC) had found that the lender advanced cigarette manufacturer Mastermind Tobacco more than a quarter of its core capital in breach of banking laws even despite being in dire need of capital injection. Kiyai said that the cigarette maker is one of the bank’s best customers and is not in default.

Mr Kiyai said the bank is hopeful that it would receive a licence even as it prepares to go out to raise additional capital.

The PIC report revealed that the bank needs Sh800 million capital injection for recapitalisation. “We are in the process of raising capital and we have already received approvals from the regulator and the shareholders,” he said but declined to give specific details.

The bank has been sitting on an approval to issue Sh2 billion corporate bond. He said the bank has now beefed up a debt recovery team and established an early collection limit to deal with the issues of non-performing loans that has seen it post some of the worst numbers in the industry.

“Our non-performing loans were at about 93 per cent in 1991. We brought this down to 11 per cent  in 2004. Our biggest challenge was that we grew pretty fast but did not put in place the necessary structures to support this growth,” he said.

The bank has been sliding deeper below the statutory capital levels over the past three years but has been given leeway to continue operating due to its ownership by the Government. “The bank is not meeting the required capital adequacy ratios necessary for the renewal of its 2015 banking licence by the CBK. Failure by shareholders to inject new capital into the bank may put the bank’s operations in jeopardy,” the report said.

The Government has 50.2 per cent stake and the remaining is owned by 26 other shareholders. The bank explained that the breach in single borrower limit (SBL) was as a result of losses that reduced the level of core capital. “The position was corrected subsequently through profits (increase in core capital) and loan repayments,” the report adds.

The bank came into being through consolidation of nine financial institutions that collapsed in the early 1990s mainly due to loan delinquency.

This was expected to boost its capital base and make it survive in the increasingly competitive sector. “The bank continues to make huge financial losses attributed to high levels of non-performing loans which needs to be addressed to support the bank’s future growth,” the report says.

The bank says it has been addressing the non-performing loans headache at the bank.