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Kenya: National Bank's Profit Crosses Sh1 Billion Mark
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Business Daily (Nairobi)
26 March 2008
Posted to the web 26 March 2008
Emmanuel Were
The National Bank's profit before tax has passed the Sh1billion mark following recovery of bad debts and an aggressive reduction in operating expenses.
Financial results for 2007 show the bank's operating expenses declined by 30 per cent to Sh3billion as provisions for bad debts fell sharply, from Sh2.32 billion to Sh594 million.
Allowance for bad loans, loan loss provision, came down to Sh594 million from the previous year's Sh2.32 billion.
The establishment of the Remedial Management Division to pursue bad debts led to the recovery of Sh515 million previously considered dud, up from Sh275 million in 2006, an 87 per cent improvement.
"All the bad debts in National Bank are not there," said Reuben Marambii, the bank's managing director. Although the bank carries Sh5.5 billion in its books as non performing assets, interest in suspense (Sh1.7 billion), loan loss provisions (Sh2.8 billion) and charged securities (Sh925 million) leave it with no bad loans exposure. A combination of those factors helped push up its pre tax profits by 72 per cent to Sh1.6 billion.
Unlike other banks that aggressively lent to their customers last year as the economy expanded, NBK suffered reversed fortunes as its net interest income decreased by 26 per cent to Sh2.9 billion.
"That should not be a cause of concern, it was according to plan," said Mr Marambii. The plan, he explained, was to reduce a portion of the bad debt by strategically lending to certain customers to reduce risk of default. He also attributed it to general fall in interest rates which produced lower interest income.
The Government, which has been one of the biggest debtors, finally came through by repaying Sh21 billion to clear its debts.
The repayment was a shot in the arm for the bank as it ploughed back part of the money into government securities, helping increase its asset base to Sh41 billion.
Its ability to pay off short-term debts was also enhanced as its liquidity ratio was at 29 per cent above the 20 per cent minimum requirement by the Central Bank of Kenya.
Players in the banking industry have been struggling to stay above the CBK requirement as their lending has been increasing at a fast rate than they receive deposits.
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Shareholders, however, will still have to wait a while longer as the bank did not declare any dividend as it has to shed off some of the accumulated losses over the years which at present stand at 2.6 billion.
In 1999 the bank incurred pre tax losses of Sh3.4 billion which the bank has been repaying over the years, hence denying shareholders dividends.
The bank plans to role out new products as well as reaching out to the un-banked population in the face of increased competition in the financial sector
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