KCB Group says it expects to claw back the expected non-performing loans hit arising out of the acquisition of National Bank of Kenya by the end of next year.
KCB chief executive Joshua Oigara said the lender would step up recoveries on the new acquisition to reduce the dud loans that have haunted NBK books since 2014.
Bad loans at NBK have grown from Sh2.2 billion in 2012 to Sh32.4 billion by the June this year.
“We expect with NBK consolidation we will increase our NPL ratio up to 12 per cent but next year we expect to come down to eight per cent which is close to where we are today at around seven per cent,” said Mr Oigara on Friday when KCB Group listed additional shares on the Nairobi Stock Exchange (NSE) following the completion of the process to take over of NBK.
KCB’s plan to intensify credit collection in key sectors and improving business conditions signals tough times ahead for NBK defaulters who are likely to face the auctioneer’s hammer. NBK’s bad debts have over the years piled up to nearly half of the bank’s loan book of Sh60.4 billion, pushing the lender into losses and eating into its capital reserves.
Global ratings agency Moody’s earlier this year warned KCB Group’s financial health will take a hit after its acquisition of the struggling NBK. Moody’s, however, noted that the deterioration of KCB’s credit position would be temporary, with the lender’s profitability and funding profiles improving in the medium-term.
“Although acquiring NBK would be immediately credit negative because of NBK’s high stock of problem loans and low capital levels would weaken KCB Group’s financial position, KCB entities’ profitability and funding profiles would strengthen over the following two to three years, outweighing the short-term effects,” Moody’s said in a June update.
KCB says it is ready to inject Sh7.5 billion capital into NBK to shore up its liquidity and fund growth during the first two years when it shall operate independently before merging with the country’s biggest bank by assets.