Business Daily (Nairobi)
James Makau
9 November 2009
Investors in National Bank of Kenya shares might receive a dividend as early as next year after a 12-year wait as the bank inches closer to clearing its pile of losses.
Latest data show that the state controlled bank's accumulated loses stood at Sh401 million in September 2009, down from Sh1.7 billion in September 2008 and Sh4.2 billion in 2007.
The bank has been on a steady recovery path that saw it return to profitability six years ago, culminating in a net profit of Sh972 million in the first nine months of this year compared with Sh893 million in a similar period a year earlier.
But the accumulated losses -- which stem from bad loans in the early 1990's -- have prevented it from paying dividends for the past 12 years, a move that has not gone down well with shareholders.
Financial analysts reckon that the shareholders tiff could end as early as the first half of the year, paving way for a dividend payout at the end of the 2010 financial year.
"The bank is likely to clear the accumulated losses by the second quarter of next year," says Eric Kimanthi, a research analyst at Renaissance Capital.
Accounting rules require that a firm should either clear its accumulated losses before paying a dividend or pay dividends but eat into its capital.
In 2005, shareholders dismissed a capital reduction proposal to surrender some of their shareholding so as to absorb the nagging deficit and instead opted for the profit growth to clear the losses.
This saw the bank's managing director Reuben Marambii estimate in 2007 that it would take upto four years for the start of a dividend payout.
The delayed dividends have made the share unattractive at the NSE particularly for long term investors.
This has been further worsened by this year's bearish run at the bourse.
Compared to its peers KCB, Cooperative Bank and Equity Bank that are heavy in the retail banking market, NBK has been trading low volumes.
The price has fallen by over 47 per cent in the last two years from a high of Sh61 to the current price of Sh32.75.
The bank got a boost in 2007 when the government settled a Sh20 billion debt that had been pending since the 1990's through four special bonds to be settled by 2022.
The debt is being paid in a series of short, mid-term and long term bonds with a maturity of between three and 15 years and at an interest rate of between 9.5 and 14.5 per cent with some of the bonds expected to be retired next year.
Interest income
This significantly cut NBK's bad debt, which stood at Sh33 billion in 2007, and offered it a steady flow of interest income that is paid half yearly from the bonds.
Though lending to a particular customer on a fixed rate for such a long time comes with risks, in this case, such a deal came at a time when the industry was finding it difficult to find a banker's dream of risk free borrowers.
Banks are struggling to find quality lending as the country's under performing economy limits financiers ability to advance credit to private sector and households.
In the third quarter of 2009, the bank received Sh2 billion in interest payment from its Sh26 billion investment in government paper, meaning only Sh1.1 billion was raised through lending to households and private firms.
NBK's interest income has increasingly become a crucial revenue earner for the bank which at Sh3.2 billion is 85 per cent of the bank's total operating income.
The banks balance sheet has also gone through a complete makeover from total non performing loans worth Sh33 billion in 2007 to Sh1.24 billion thanks to the settlement of the government guaranteed loans.
Now, the government, which controls 70.2 per cent of the bank's shares, is planning to sell 25 per cent of the shares either through a strategic investor or to the public through the NSE within the coming year.
Privatisation plans
NSSF owns 48 per cent shares in NBK, the Government directly holds 22.5 per cent shares in the bank while the remaining stake is held by the public.
The privatisation plans, which has been on the cards since 2002, had been delayed by a controversy over how to fix NBK's hitherto debt ridden balance sheet.
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