Shareholders of Bank of Africa (BOA) Kenya have been exempted from a 25 per cent shareholding threshold to allow them recapitalise the lender.
In a Special Gazette notice, National Treasury Cabinet Secretary Ukur Yatani exempted the lender from a legal provision that caps the ownership of a bank.
“In exercise of the powers conferred by Section 53(1) of the Banking Act, the Cabinet Secretary for the National Treasury and Planning exempts the Bank of Africa Kenya from the provisions of section 13 (1) of the Banking Act for a period not exceeding five years,” said Yatani in the notice dated September, 2020.
BOA is in breach of at least two capital adequacy ratios, which means its financial health is not good.
One is the core capital to total weighted assets ratio. Core capital is the money a bank has that comes from its shareholders and from any profit made and retained.
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Risk-weighted assets are used to determine the minimum amount of capital that must be held by banks and other financial institutions, to reduce the risk of insolvency.
Central Bank of Kenya’s minimum requirement for this ratio is pegged at 10.5 per cent but BOA’s was at 4.8 per cent by the end of June.
Another capital adequacy ratio is the total capital to total risk weighted assets, whose regulatory minimum is at 14.5 per cent. However, BOA’s was at 8.4 per cent.
“Bank of Africa Kenya has received approval from Cabinet Secretary for the National Treasury and Planning to recognise Sh1.5 billion as Tier 1 capital, thereby bringing the shareholding of the bank’s parent company, BOA Group SA, above the statutory threshold of 25 per cent for a non-regulated entity,” said BOA in a statement.
The funds have been held by the bank as a customer deposit since March 2020, as BOA Group sought the exemption of the Cabinet Secretary for the increase of its shareholding in the bank.
BOA undertook a massive clean-up exercise in 2019 to provide for its non-performing portfolio which eroded its capital adequacy ratios, and as a show of confidence in its subsidiary, BOA Group quickly injected the needed capital.
In its annual report for 2019, the bank agreed that its capital adequacy ratios were inadequate to meet the regulatory minimum ratios.
“The shareholder is injecting an additional $15 million (Sh1.5 billion) in tier 1 capital and $7.5 million (Sh750 million) in tier 2 capital,” said the lender in a statement.
The first tranche of the money was to be disbursed by March 2020 while the second one, a subordinated debt, is to be disbursed by December 31, 2020.