Retrenchment costs eat into National Bank’s pre-tax profit

Kenya: National Bank of Kenya has reported a 28 per cent drop in pre-tax profit for the year ended 2014 owing to high costs of paying off retrenched staff.

Figures released by the bank yesterday indicate that NBK spent more than Sh1.1 billion to compensate laid-off staff, a fact that affected the bank’s overall bottom line. The job cut is part of a raft of measures undertaken by the bank to revamp the bank and reclaim its position as one of the country’s top lenders.

The bank’s profit before tax, however, excluding the compensation costs, went up 30 per cent up to hit Sh2.43 billion, up from the Sh1.81 billion posted in the same period last year.

National Bank’s Managing Director Munir Ahmed was, however, upbeat that the bank was on course to achieve its five-year transformation process. He attributed growth in revenues to better management of costs and credit risk.

“In order to aggressively grow the business, we have tailored Customer Value Propositions for different customer segments, implemented a robust sales model and product innovation,” explained Munir during an investor briefing held yesterday at a Nairobi hotel.

“Total operating income grew by 17 per cent to Sh9.93 billion, up from Sh8.5 billion recorded in 2013 and interest income grew by 31 per cent to Sh10.7 billion, up from Sh8.17 billion. This was mainly due to a marked increase in market share in loans and advances,” he said.

Operating Expenses

During the period under review, total operating expenses increased marginally by nine per cent, up from Sh6.40 billion registered in 2013 to stand at Sh6.98 billion.

National Bank’s loan book also increased by Sh26.07 billion to register a 66 per cent growth, with deposits from customers growing from Sh77.99 billion to Sh104.73 billion, reflecting a 34 per cent increase. The bank has over the last two years been on a restructuring process, which also saw the lender retrench 190 employees under a Voluntary Early Retirement scheme meant to cut it’s expanded wage bill. He said some staff had been redeployed to 25 new branches opened last year to reduce overall costs.

“It was a voluntary early retirement for employees that were fifty years and above and we believe this will enable us efficiently maximize on our resources,” said Munir.

Total assets increased by 33 per cent to Sh123.09 billion in 2014, up from Sh92.56 billion recorded in a similar period the previous year.

The bank has set its annual general meeting for Friday March 27, with the directors recommending non-payment of dividends to shareholders for the year ended December 31, 2014. It will also seek shareholders’ approval for a bonus share issue of 28 million shares valued at Sh140 million.