NBK grows profit 20-fold to Sh407m after KCB takeover

National Bank branch along Kenyatta Avenue. The lender, which was recently bought by KCB, reported a 20-fold growth in profit. [File, Standard]

The National Bank of Kenya profit has surged after the take-over by KCB Bank. The lender on Friday reported that it had made a net profit of Sh407 million for the nine months to September this year, a 20 fold increase from Sh21.97 million made over a similar period last year.

The bank, which has a legacy of a huge non-performing loan portfolio, grew following rise in interest income. Despite the growth in its bottom line, the bank still faces daunting challenges key among them rising expenses and declining customer deposits.

Interest income marginally increased by about 4.7 per cent to Sh6.6 billion in the nine months to September 30, 2019 compared to Sh6.3 billion during the same period last year.

Operating income for the period stood at Sh6 billion, a 7 per cent increase from Sh5.6 billion over the same period in the previous year. This was mainly due to growth in interest earned from loans and advances and other earning assets, coupled with continuing diversification of funding base, which resulted in reduction of interest expense by eight per cent year on year.

“The bank achieved this level of growth against the backdrop of a challenging environment, both externally and internally. Our main focus has been enhancing customer experience, preserving and optimizing value while effectively mitigating risks through proactive risk management,” said Paul Russo, NBK Managing Director.

“Our focus is now on integrating NBK into the group, while continuing to deliver innovative financial solutions that are attuned to the dynamic needs of our customers. We are optimistic about the bank’s fortunes.”

The bank’s expenses increased by four per cent to Sh5.4 billion, which it said was driven by increased loan loss provisions, which increased to Sh15.5 billion over the period from Sh13.2 billion.

Customer deposits reduced to Sh82 billion as at September 30, 2019 compared to Sh93 billion over the same period in 2018, which it said was due to reduced customer flows and tight liquidity in the market.

Net loans and advances declined by Sh150 million to Sh47.8 billion over the same period due to recoveries made on existing loans.   

Total assets shrunk five per cent to Sh107.2 billion compared to Sh112.45 billion in the same period last year

NBK became a subsidiary of the KCB this year following an acquisition where the shareholders of the struggling lender were issued with one KCB share for every 10 held.

KCB has inherited a Sh32.95 billion bad debt from NBK, which has over one year risen by about Sh2 billion having stood at Sh32.88 billion in September 2018.

“Next year is the real recovery period for the loans we have on NBK,” said Joshua Oigara, KCB chief executive  recently. He had expected an increase in NPLs to 12 per cent, before declining to eight per cent next year comparable to those of KCB currently at seven per cent. He said this would be a “temporary increase as we re-organise the recovery of those loans.”

It recently said that beginning next year, it will pursue with vigour NBK’s loan defaulters. It has recently been going after its own defaulters, culminating in the placement of troubled sugar company, Mumias Sugar, under receivership.

KCB has also recently moved to assert its authority in the running of NBK by shaking up the top management as well as replaced all but two directors at NBK’s board.