Investor jitters delay KCB Kenya funding

KCB Group now targets to recapitalise its Kenyan subsidiary, KCB Kenya, within January 2024, after investor jitters over Kenya’s sovereign (country) risk derailed the plan of closing it by the earlier planned date of October 31, 2023.

KCB Kenya has in the recent past come under close scrutiny by investors and market watchers following the erosion of its capital buffers, something the group’s top management says has been a key driver of the 50.8 percent plunge in its share price since the start of the year.

KCB Group had planned to inject $100 million, about Sh15.3 billion, of tier-two capital by October 2023.

Tier two capital refers to the second layer of protection that banks have, after tier one capital, and is often characterised by unsecured credit, which means in the event of the winding up of a bank, the creditors would be paid only after all others have had their obligations settled.

“Investors are reviewing Kenya as they review you ask for that tier two capital. You may be bullish about KCB but there is a bigger review that will be ongoing and I guess that came into play,” KCB Group chief executive Paul Russo said in an interview.

“We were very optimistic and were almost very sure about closing that out but I actually see that getting done in January 2024. We have three parties evaluating that process. I just think there are lessons on what internally we could have done a lot faster to be able to close that out.”

KCB and other major Kenyan banks have relied on international financiers, including development finance institutions to raise medium to long-term funding that has gone to bolster their capital, helping them to expand their lending.

As at the close of September 2023, the Kenyan subsidiary of KCB closed with its core capital to deposits at 9 percent against the statutory minimum of 8 percent while core capital to total risk-weighted assets stood at 10.8 percent against the statutory minimum of 10.5 percent.

KCB Kenya has come under pressure from a capital adequacy standpoint owing to the acquisition of an 85 percent stake in the TMB subsidiary in DR Congo which was completed in December 2022.

In this transaction, KCB Kenya was compelled to pay dividends to the group for the group to consummate the acquisition hence the strain on KCB Kenya’s capital position.

The Kenyan unit remains the most important subsidiary for the Nairobi Securities Exchange-listed firm, contributing 80 percent of the group’s net income of Sh29.9 billion in the nine months ended September.

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