National Bank angles for slice of regional markets

AIG Insurance Agency Manager Francis Kianga shares product information with clients at the company’s stand during the Homes Expo trade fair held at the KICC. AIG’s stand was adjudged the best in the insurance category.
            AIG Insurance Agency Manager Francis Kianga shares product information with clients at the company’s stand during the Homes Expo trade fair held at the KICC. AIG’s stand was adjudged the best in the insurance category

By James Anyanzwa

The National Bank of Kenya (NBK) has sights trained on expanding its footprint into the regional markets. The bank has a keen interest in the Ethiopian market, whose doors are still locked to foreign investors.

 The state-owned bank is also angling for opportunities in Somalia, Southern Sudan, Uganda and Tanzania. It hopes to secure appropriate acquisitions to fast-track entry into these markets.  “We were still consolidating our local operations but now I think we are in good shape to go regional,” said Munir Ahmed, the bank’s managing director.

 Munir noted that Ethiopia, one of Africa’s fastest growing economies, offers huge investment potential in the financial sector. This is despite its government pursuing a tightly controlled economic model that has locked out many foreign investors.

High growth rate

Regional and pan-African banks are also peering in, hoping to set up shops in Africa’s second most populous country after Nigeria. Ethiopia’s growth averaged 10.6 per cent in the seven years to 2011, double the continental average.

The International Monetary Fund (IMF) predicts the economy will grow at 6.5 per cent this year. “Next year is just one market most probably Southern Sudan. However if Ethiopia opens up we shall be the first people to be there,” Munir told Weekend in Business in an interview this week.

 “Acquisitions depends on the market. If opportunities arise we will evaluate them because entering into a new market through acquisition is better especially in terms of the speed of getting into that market.”

 He said it requires about $10 million(Sh860 million) to $15 million (Sh1.3 billion) to set up a single branch in a new market, noting that the figure could vary depending with the type of  market.  National Bank has crafted a five-year strategy seeking to grow its turnover from the current Sh8 billion to Sh31 billion and attain a Tier 1 status by 2017.  The bank will also open 30 new branches across the country during the same period.

The plan, which has been coined by the bank’s new management, seeks to reposition NBK as a key player in the banking industry and restore its foothold onto its rapidly fading market share. NBK board has outlined a raft of new measures with hopes of transforming the 44-year-old institution into a highly profitable and competitive banking entity.

Stiff competition

Part of the restructuring process includes the diversification of the Bank’s balance, which has highly concentrated on retail banking. 

NBK has so far created a new corporate and institutional banking division to rival top lenders like Barclays, Kenya Commercial Bank (KCB) and Standard Chartered Bank and reduce its reliance on consumer lending.

 The bank has strengthened the capacity for its Treasury department, recruited new talents in market risk, operational risk and credit risk and revamped customised value prepositions by venturing into Islamic banking. The Bank’s shareholders approved the bank’s proposal to raise over Sh10 billion in additional capital through a rights issue. The bank’s owners also backed the proposal to set up regional subsidiaries and increase the bank’s authorized share capital from Sh3 billion to Sh7 billion through the creation of 800 million new shares.

 The bank, which has rebranded as part of its transformation programme is seeking to issue 1.12 billion new shares to the existing shareholders subject to regulatory approvals.

The proceeds from the cash call which, is scheduled for next year, will be used to finance the bank’s local and regional expansion programmes.

The additional capital is also intended to help the bank comply with the regulator’s new capital requirements.

CBK guidelines

The Central Bank of Kenya (CBK) issued new prudential guidelines, which require commercial banks to maintain minimum core capital of Sh1 billion (effective December  31, 2012  as per the Banking Act).  Banks are also required to observe new capital ratios under the new guidelines.

 The new guidelines introduced a requirement for a capital conservation buffer of 2.5 per cent over and above the existing core capital and total capital ratios. This has an impact of increasing minimum core capital from eight per cent to 10.5 per cent and total capital from 12 percent to 14.5 per cent.  In addition, the computation of risk-weighted assets, which is currently based only on credit risk, will incorporate a charge for market risk and operational risk. This will have an impact of further increasing capital requirements.

 Initially CBK had given a timeline of 18 months to comply with the new capital requirements, but this has now been revised.

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