Government bank relies on teachers' salary not to collapse

National Bank of Kenya Headquarters in Nairobi (PHOTO: FILE)

NAIROBI, KENYA: The National Bank of Kenya (NBK) stayed afloat on Sh14 billion monthly teachers’ salary in 2015.

This was revealed in a case where NBK’s Head of Treasury Solomon Alubala has sued Capital Markets Authority (CMA), complaining that he had been slapped with a Sh104 million fine without being given a chance to question evidence given to the regulator.

It emerged that the bank relied heavily on the money released to Teacher Service Commission (TSC) to cushion its liquidity ratio, and when the money left its coffer for salaries, pressure on cash flow would immediately be felt. This was around Sh14 billion every month.

Court papers read that Central Bank of Kenya (CBK) was aware of the struggle, as it allegedly sourced for funds on the inter-bank market to salvage the bank.

“The bank would rely on interbank market every month to fund the artificial position created by the TSC funds. In the balance sheet structure on the deposit side, we had a huge concentration risk on one client,” the court papers filed yesterday read in part.

Government introduction of a single payment system also hurt the bank.  According to Alubala, Government deposits form over 40 per cent of the total deposits in the banking sector.

In the case, Alubala complained that the punishment slapped on him was severe. CMA also blocked him from holding any public office for 10 years.