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in Africa – The Kenyan Experience
RECENT BANK RESOLUTION EXPERIENCE in
KENYA-The national bank case
Presented by: M. A. MOHAMUD
Asst. Director
Deposit Protection Fund
Board, Kenya
12th May 2011
1
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2
in Africa – The Kenyan Experience
AGENDA:
A.Introduction
B.Causes of problems
experienced by National Bank
of Kenya [NBK]
C.Forbearance Resolution
Mechanism
D.Current position of NBK
E.Future outlook for NBK
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in Africa – The Kenyan Experience
NATIONAL BANK OF KENYA – RESTRUCTURING
PROCESS
A. INTRODUCTION
National Bank of Kenya [NBK] was incorporated on
19th June 1968 with the prime objective of assisting
Kenyans gain access to credit and control their
economy. It was incepted as an indigenous bank whose
image it prides to date. The Bank attracted loyal local
clientele including the Quasi Government accounts thus
emerging amongst the top 5 commercial banks in the
country, maximizing on its operation and profitability.
3
The initial authorized core capital was KShs. 20 M
[USD 238,000] which grew progressively to KShs. 9 B
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in Africa – The Kenyan Experience
A. INTRODUCTION [Contd.]
NBK has 2 [two] subsidiaries, Nathank Trustees and
Investments Services Limited which were established to
manage the retirement benefit schemes. It is also
licensed by Capitals Market Authority and Retirement
Benefit Authority to act as custodian and depository for
retirement benefits. The Bank also pioneered the
introduction of the Local Visa Credit Card in 1993 not to
mention being one of the first to offer online banking
services in Kenya.
4
Additional feather to the Bank’s services was the
provision of tax collection services to Kenya Revenue
Authority.
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in Africa – The Kenyan Experience
B. CAUSES OF PROBLEMS EXPERIENCED BY NBK
The Bank started showing signs of distress in 1998
resulting in huge losses posted during the year and
three [3] subsequent years. These were attributed to:
Poor and weak Corporate Governance structureResulted in high credit risk where loans were granted
without adequate securities and/or documentation.
5
Poor Asset Quality- resulted in accumulation of a
large portfolio of NPA’s which stood at KShs. 36B [USD
428.5M] while Deposits shrunk from KShs. 25B [USD
297.6M] to KShs. 14B [USD 166.7M] following a near
run and government Directive to parastatals not to
OF DEPOSIT
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ABUJA,
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9TH MAY
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MAY Insurance
2011 2010
in Africa – The Kenyan Experience
B. CAUSES OF PROBLEMS EXPERIENCED BY NBK
[Contd.]
 Systemic risk - The Banking Industry witnessed
closure of a number of Banks that undermined public
confidence in the financial sector.
Political risk - Being an election period, financial
discipline was compromised leading to expansionary
money supply to serve political interests and hence
distorted the economic variables of high inflation,
interest and exchange rates.
6
Moral Hazards - Credit risk management principles
were relegated and compromised to serve personal and
OF DEPOSIT
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7
in Africa – The Kenyan Experience
C. FORBEARANCE RESOLUTION MECHANISM
To restore its image and shed off problems faced, NBK
embarked on the following:
1. Reconstitution of the Board and creation of the post of
Managing Director [MD] and Chairman of the Board. The
Bank was previously under an Executive Chairman a
position that was found untenable. The MD was seconded
from CBK to oversee the recovery plan. This in essence
went a long way to strengthen Corporate Governance and in
line with International Best Practices.
2. The two [2] major shareholders - GOK and NSSF were
prevailed to convert deposits to long term loans and
eventually to Equity.
3. Development of an effective 5 year strategic plan to enable
the Bank attain profitability, employee and customer
satisfaction to regain the considerable market share it once
possessed
OF DEPOSIT
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MAY Insurance
2011 2010
in Africa – The Kenyan Experience
C. FORBEARANCE RESOLUTION MECHANISM
[Contd.]
8
5. Extension of liquidity support by the Government.
NSSF and GOK injected KShs 1.175 [USD13.9M]
and 4.5 [USD 53.5M] billion respectively to shore up
liquidity and capital ratios.
6. Freezing of credit growth for 2 [two] years in order to
embark on a massive restructuring of its operations.
7. Operational restructuring- included realignment of
day to day functions, boost liquidity and rationalize
cost through trimming branch network and staff
compliment. 15 branches were closed and staff
reduced from 1500 to 900.
8. Aggressive Marketing Campaign - Resulted in
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MAY Insurance
2011 2010
in Africa – The Kenyan Experience
D. CURRENT POSITION OF NBK
By 2003, NBK had amazingly turned around and
returned to profitability. This has resulted in the
following:
9
 Maintenance and growth of deposits which had been
eroded from KShs. 25B [USD 297.6M]to KShs. 14B.
Bank today boasts of a solid deposit base of KShs.
50 B [USD 595.3M]
 Investment in new retail banking products-Internet
Banking, shariah- compliant products, personal loans
and mortgages.
 Re-establishment of links with international banks
 Financial restructuring where GOK arranged for a
OF DEPOSIT
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SCHEMES”
““MANAGEMENT
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ofTO
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29Benefits
313
DECEMBER
IN MOMBASA
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NIGERIA
9TH MAY
TO
MAY Insurance
2011 2010
in Africa – The Kenyan Experience
D. CURRENT POSITION OF NBK[Contd.]
 Return to profitability-Benefits shareholders and
makes the stocks attractive to potential investors
 Profits driven mainly by increased lending that saw
net loans and advances rise by KShs. 7.7B [USD
91.6 M]to KShs 20.8B [USD 247.6] reflecting a
growth of 58% compared to the industries average of
20.4% for the year 2009 - 2010. Analysts reckon that
the Bank has the lowest Loan-Deposit ratio in the
industry and thus has potential for further growth.
10
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MAY Insurance
2011 2010
in Africa – The Kenyan Experience
E. FUTURE OUTLOOK FOR NBK
NBK is gearing towards regaining its past glory and
playing its significant role in developing of the nation.
 Continued growth of deposit accounts and active
participation in the financial intermediation process.
 Redemption of lost image – Negative publicity still dogs
the bank.
 Gearing towards restarting its growth pattern by investing
in Branch network and Agency Banking to deepen
financial access and regain market share.
11
 Privatization process is underway to give the Bank a fresh
OF DEPOSIT
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SCHEMES”
““MANAGEMENT
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in Africa – The Kenyan Experience
F. CONCLUSION
12
NBK is a test case to show that where
resolution mechanisms are properly
identified, formulated and effectively
managed, together with commitment
from the regulator, shareholders,
management and staff, such resolutions
will go a long way in enhancing public
confidence and contribute to financial
stability.
OF DEPOSIT
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2011 2010
in Africa – The Kenyan Experience
THANK
YOU
13