Kenya Commercial Bank (KCB) will inherit a Ksh31.4 billion bad loans from the troubled National Bank of Kenya (NBK) in the merger plans.
According to a circular sent to shareholders, KCB say that it will prioritise collection of the bad loans, which amounts to more than 50 percent of NBK’s loan book. NBK loans amount to 60.4 billion currently.
Most of the loans, according to previous media reports, were advanced to individuals deemed to be politically correct without any collateral, who later defaulted on the loans.
“NBK loan book has a non-performing loan (NPL) ration in the region of 49 percent as at December 31, 2018. Post-acquisition, KCB plans to employ all possible legal measures to recover as well as write down key NPLs, and subsequently put in place effective loan portfolio quality,” read the circular.
KCB is also planning to inject a Ksh7.5 billion capital to revive the dwindling fortunes. Bad loans for the bank have risen from Ksh7.2 billion in 2014 to the current 31.4 billion.
NBK was initially fully owned by the government since its inception in 1968, but the government has shed its stake to the current 22.5 percent.
NBK’s management has been accused of mismanagement and collusion with defaulters to forfeit the loans, which has run down the bank.
In the takeover bid, KCB valued NBK at Ksh5.6 billion or Ksh3.8 per share. However, the merger will be a share swap at the rate of 10 NBK shares for one KCB stock.
During the acquisition, KCB has also announced that it will create new 147.3 million shares to NBK’s investors.
The merger will see KCB become the biggest bank in the region in terms of assets under management, amounting to over Ksh1 trillion in three years.
However, in the merger proposal, KCB will maintain NBK as a standalone subsidiary of KCB Group for a period of two years post-acquisition and thereafter fully integrate NBK into KCB Bank Kenya.
KCB plans to de-list NBK fro the Nairobi Stock Exchange (NSE) upon the receipt of 75 percent of the bank’s total shareholding.