National Bank projects drop in 2015 earnings

National Bank of Kenya

Less than 24 hours after suspending six senior managers pending an internal audit of the financial performance, National Bank has issued a profit warning for its 2015 financial year.

The bank has linked the performance to growth in non-performing loans that are set to put pressure on the bank’s earnings.

According to a statement from the board, the rise in impairment charges on the loans affected its ability to generate revenue.

“NBK’s non- performing loans portfolio increased towards the end of 2015 which led to a sharp increase in the level of impairment charge,” the bank’s board said in a statement to investors.

The bank says it has identified the non-performing loans and the board is taking steps to recover the loss position.

A non-performing loan refers to a loan that is in or near default after a borrower fails to make payments over a 90-day period.

In a statement on Tuesday, National Bank Chairman Mohamed Hassan said the six managers including CEO Munir Ahmed had been suspended to give space for a review of the bank’s performance and investigate breach of corporate governance.

The Central Bank of Kenya, which met with the board on Tuesday, has hailed the move as timely in protecting the financial system.

“The CBK welcomes these timely actions to strengthen the NBK while maintaining smooth operations, and that will protect the financial system,” the regulator said.

The sentiments from the regulator come as Dubai Bank and Imperial Bank were placed under receivership in 2015 in the space of two months. The CBK has been strengthening its bank supervisory role in an effort of restoring confidence to the banking sector.

The board of National Bank also says that the management failed to close the sale of an asset that had been approved further denting revenue.

“The projected sale of one key low yielding asset was not completed in the year thereby reducing the projected income from the same,” the bank notes.

In June 2015, suspended CEO Munir Ahmed had indicated the bank planned to raise Sh1.2 billion from the sale of buildings to shore up its capital base.

National Bank has been planning to raise Sh13 billion through a rights issue but that has faced delays with the government remaining non-committal in taking up its rights in the bank.

The National Social Security Fund (NSSF) is the largest shareholder in the bank with a 48% stake while the National treasury holds 22.5 percent.

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Story By Michael Karanja
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