Kenyan financial services holding company KCB Group, led by CEO Paul Russo, is seeking a $200-million loan to bolster the capital base of its Kenyan subsidiary, KCB Bank Kenya. The move comes amid concerns the subsidiary’s loan-to-deposit ratio has breached regulatory thresholds.
The decision follows KCB Group’s recent stride in signing a significant share purchase agreement with Access Bank, one of Nigeria’s leading banks. The agreement entails the divestiture of KCB’s entire 100-percent shareholding in National Bank of Kenya Limited (NBK) at a valuation of 1.25 times net book value, amounting to Ksh13.2 billion ($100 million).
In light of these strategic maneuvers, KCB Group seeks to shore up its capital adequacy ratios in compliance with the directives of the Central Bank of Kenya (CBK). Despite previous efforts, including a financial infusion of Ksh14 billion ($105.88 million) into NBK, the subsidiary struggled to meet the minimum capital requirements.
KCB Group CEO Paul Russo outlines strategy to supercharge Kenyan subsidiary
Paul Russo, CEO of KCB Group, affirmed the group’s commitment to reinforcing its Kenyan subsidiary through a blend of retained profits and additional borrowings from development finance institutions.
“KCB Bank Kenya will augment its core capital through the growth of retained earnings,” Russo stated, emphasizing the pursuit of subordinated debt totaling $200 million from development finance institutions to bolster the bank’s Tier II capital.
Under Russo, who assumed the role of CEO in May 2022, KCB Group has strengthened its position as one of East Africa’s leading groups, operating as the holding company for KCB Bank Kenya, National Bank of Kenya, and regional subsidiaries across Tanzania, South Sudan, Uganda, Rwanda, Burundi, and Ethiopia.Â
The group remains a dominant force in the Kenyan financial landscape, boasting the largest banking group by assets and positioning itself as one of the most capitalized firms on the Nairobi Securities Exchange.
KCB Group walks tightrope as loan growth outpaces deposits
KCB Bank Kenya’s loan book has surged in recent years, outpacing its deposit base. While this can deliver short-term profitability, it strains the bank’s capital adequacy ratios. The Central Bank of Kenya (CBK) mandates a minimum core capital adequacy ratio of 11.5 percent, necessitating prudent capital management.
KCB’s success in securing a $200-million loan is crucial for its future. The additional capital will allow continued lending to businesses and consumers while meeting regulatory requirements. However, KCB Group must also address the reasons behind the rapid loan growth and ensure a more balanced capital management strategy.
