Kenya Commercial Bank (KCB) will go after loan defaulters of its newly acquired subsidiary, continuing the current trend that has seen Mumias Sugar Company placed under receivership.
Joshua Oigara, the KCB CEO, revealed that effective next year, they will begin the process of recovering loans owed to the National Bank of Kenya (NBK), which they acquired.
“It is true we will demand delivery of our contract for the borrowers, whether it is NBK or KCB. That vigour will continue. So we expect to recover a number of those loans,” said Oigara, when the lender listed an additional 143 million shares at the Nairobi Securities Exchange yesterday.
In recent times, KCB has been going after its defaulters, culminating in the placement of troubled sugar company, Mumias Sugar, under receivership.
Other debtors that have been on KCB’s radar include East African Portland Cement Company (EAPCC).
But it is NBK’s bad loans that will occupy the time of Mr Oigara’s debt recovery team. KCB has inherited a total of Sh31.4 billion bad debts from NBK.
“Next year is the real recovery period for the loans we have on NBK,” said Oigara.
As a result, Oigara expects KCB’s non-performing loans (NPLs) to increase to 12 per cent, before declining to eight per cent next year. Currently, KCB’s NPLs are at seven per cent.
“It is a temporary increase as we re-organise the recovery of those loans,” said Oigara.
Moody’s, an American rating agency, noted in a recent issuer comment that NBK’s high stock of problem loans and low capital levels would immediately weaken KCB’s financial position as the lender is forced to absorb the bad loans and set more money aside to cushion against risks of loss.
Parastals’ loans
NBK’s low capitalisation will also lead to a slight deterioration of KCB’s capital adequacy, although Moody’s expect them to remain above regulatory requirements and that of global peers over the transition period.
However, the deterioration of KCB’s credit position would be temporary, with the lender’s profitability and funding profiles improving in the medium-term, explained Moody’s.
In the 1990s, NBK incurred a string of bad loans from politicians and an attempt to turn around the fortunes of the company by tapping former CBK’s head of bank supervision, the late Reuben Mbaine Marambii, did not yield much.
NBK is reported to have been used to guarantee parastals’ loans and extended loans to well-connected politicians, although Oigara insisted none of the top 10 bad loans were from public sector.
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On the listing of the additional shares - and which began trading yesterday - National Treasury CAS Nelson Gaichuhie said it would help achieve the government’s policy of having big banks.
“We expect a lot more mergers and acquisitions in the banking sector,” said Gachuhie, noting that the country was already over-banked.
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