NAIROBI: A sharp increase in bad debts in the fourth quarter of 2015 has forced the National Bank of Kenya board to send home six top managers including CEO Munir Sheikh Ahmed to allow for an audit.
Yesterday, the board in a statement warned that due to the bloated non-performing loans portfolio, NBK will see its full-year 2015 results dip by at least a quarter. The lender said its full-year earnings, which must be released before close of this month (today), will shrink by at least one quarter from the previous year, further deepening the lender’s troubles.
“NBK’s earnings for the year ended December 31, 2015 will be at least 25 per cent lower than that reported in the year ended December 31, 2014,” the lender said in its statement.
It said the profit dip was caused primarily by higher non-performing loans that increased towards the end of 2015. This, the lender says, led to ‘a sharp increase in the level of impairment charge.’
“The bank has identified the non-performing loans and has taken a series of steps to manage recovery of the said position,” the statement read in part. Mr Ahmed is expected to appear before the board today to explain the sharp increase in loan defaults.
The bank also attributed its worsening fortunes to delay in the sale of an unidentified ‘low-yielding asset’.
“The projected sale of one key low-yielding asset (approved by the board) was not completed in the year thereby reducing the projected income from the same,” the statement issued by the bank’s board added.
But even as the bank moves to manage the crisis that has fuelled increased negative publicity besides denting public confidence, the lender received rare support from market regulator.
The Central Bank of Kenya (CBK) in a statement acknowledged the timely action of the board to strengthen the bank and its decision to carry out an audit to establish the root cause.
“The CBK welcomes these timely actions... while maintaining smooth operations, and that will protect the financial system,” the statement read in part.
The regulator said in a statement that it held a meeting on Wednesday with NBK’s chairman and some board members and was briefed on the emergent concerns and their proposed actions going forward.
CAUGHT OFF GUARD
The initial market reaction to the NBK crisis saw the bank’s share price fall by nearly 8.59 per cent. At the close of trade at the Nairobi Securities Exchange yesterday, the lender’s share price traded at Sh13.30. It was among the top three losers in the bourse.
Every pensioner and taxpayer has a material interest in NBK as the National Social Security Fund (NSSF) together with Treasury effectively own 70.6 per cent.
The latest events at NBK are set to put the CBK, the banking sector regulator, into fresh focus coming at a time when CBK has been caught off guard by underhand dealings at commercial banks. Already, CBK is battling issues to do with the Dubai and Imperial banks in court due to different irregularities at the banks that forced them to be put into receivership.
NBK’s profit warning comes on the back of an audit that has caused the bank’s managing director to be suspended alongside five other top managers. The six were on Tuesday sent on compulsory leave pending an investigation into alleged breach of fiduciary duty and failure to adhere to corporate governance rules.
The bank did not name the five managers affected but insiders say there have been changes in Corporate, Institutional and Business Banking, headed by Boniface Biko. Other exits have been in the office of the Chief Risk Officer, headed by a George Jaba as well as the ICT department under Mohamed Abdalla.
Wilfred Musau, the bank’s director for Retail and Premium Banking, took over as acting managing director pending conclusion of the audit.
As at the end of 2014, workers through the National Social Security Fund (NSSF) were the biggest shareholders in the bank, controlling 134 million shares or a 48.1 per cent stake. The lender made Sh870 million in profits after tax in 2014, an eight per cent growth.
The Government through the National Treasury had 63 million shares, which translated into a 22.5 per cent stake. Together, the Treasury and the NSSF controlled a 70.6 per cent stake by the end of the 2014 reporting period, effectively handing the Government a controlling stake in the bank.