Consolidated Bank’s rights issue flops, costs it licence

What you need to know:

  • Consolidated Bank has been struggling with capital adequacy in the last three years and had planned to raise Sh1.8 billion through the cash call launched in February this year.
  • The government has previously disclosed plans to privatise the bank either by inviting a strategic investor or issuing shares to the public.

Consolidated Bank’s first rights issue flopped after principal shareholders rescinded their commitment to support the Sh1.8 billion cash call, forcing the Central Bank of Kenya to deny the bank an operating licence.

The bank also operated last year without a licence, underlining the CBK’s soft stance on state-owned lenders, some of whom are operating in breach of statutory ratios.

Consolidated Bank, majority owned by the government, has been struggling with capital adequacy in the last three years and had planned to raise Sh1.8 billion through the cash call launched in February this year.

Capital limitations have seen the lender slip back into the red, reporting a Sh71 million net loss in the six months ended June, compared to a net profit of Sh35 million a year earlier.

“The capital raising exercise was not successful because of the restrictive core mandates of most State corporations (shareholders),” Consolidated Bank’s chairman Benson Ateng’ said in the lender’s latest annual report.

“The bank therefore had not met the capital adequacy ratios and as a result, it was not issued with a banking licence.”

Shareholders of the bank had approved the cash call in an extraordinary general meeting called by the bank in December last year. The rights issue opened on February 1 and was to close on April 4.

The bank was offering shareholders two new shares for each one held, which would have seen it issue 89,840,000 new shares at Sh20 each.

The lender’s shareholders include the National Treasury (77.9 per cent), National Social Security Fund (five per cent) and the defunct Kenya National Assurance (4.3 per cent).

Others are the Kenya National Examination Council (1.5 per cent), Kenya Pipeline (1.6 per cent) and National Hospital Insurance Fund (1.3 per cent).

The Treasury raised its shareholding last year from the previous 50.1 per cent after it converted a Sh500 million loan issued to the bank in 2014 to equity. The Treasury received 25 million new shares in the transaction.

The government has previously disclosed plans to privatise the bank either by inviting a strategic investor or issuing shares to the public.

Consolidated Bank’s core capital to total risk weighted assets is currently 7.1 per cent, 3.4 percentage points below the statutory 10.5 per cent. This means the bank has lent out more than its capital allows.

The bank’s loan book stood at Sh9.1 billion in June up from Sh8.7 billion in a similar period last year. Customer savings are Sh9.2 billion, a drop from Sh9.6 billion.

A rise in loan loss provisions pushed the bank to a loss position. The bank provided Sh137 million for loan losses, having booked an income of Sh37 million last year from the same line following write-back of previous defaults.

The bank defied the industry trend of rising non-performing loans to record a 44.6 per cent drop in bad debts to Sh1.7 billion.

The bank’s management has relied on internal funds to turn around the lender, whose accumulated losses currently stand at Sh604 million, eroding its core capital position.

Its core capital is at Sh1.01 billion, lower than the Sh5 billion the National Treasury is recommending and which is proposed to take effect in three years.

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