NIC seeks Sh4.4bn World Bank loan
What you need to know:
- As at June 30, NIC’s ratio of total capital to credit advances stood at 12.52 per cent, just 0.52 per cent above the current rate of 12 per cent.
- In the past three years, IFC has loaned to several local banks, mainly in support of lending to the SME sector.
NIC Bank has joined a growing list of financial institutions in Kenya looking for funding from the World Bank as pressure to keep within the Central Bank capital requirements weighs in.
The mid-tier lender is to get a Sh4.4 billion ($50 million) loan from the International Finance Corporation (IFC), the World Bank’s private lending arm.
“The loan will strengthen the capital base of the bank,” read the IFC disclosure document.
BELOW RATIO
NIC bank is currently below the 14.5 per cent total capital to risk weighted assets ratio set by the Central Bank that is expected to come into effect at the start of next year.
As at June 30, NIC’s ratio of total capital to credit advances stood at 12.52 per cent, just 0.52 per cent above the current rate of 12 per cent.
The January 1 deadline would put it below the minimum capital requirement by almost 2 percentage points.
Barclays Bank of Kenya is borrowing Sh4 billion from its parent company in London to boost its capital base, with its ratio standing at 15.7 per cent.
“International finances come at concessionary rates, making the loans most preferred. We are likely to see many partnerships between local banks and international players,” said Mr Eric Munywoki, a research analyst at Old Mutual Securities.
MORE HEADROOM
He added that banks are comfortable borrowing from international private lenders as they provide the option of converting the loans to stake, thereby “reducing pressure on their internal resources”.
In the past three years, IFC has loaned to several local banks, mainly in support of lending to the SME sector.
Last year, Kenya Commercial Bank received Sh12.9 billion from IFC to finance mortgage lending, in addition to a Sh8.8 billion that was received from the corporation in 2011.
Equity Bank bagged a Sh8.3 billion loan from the World Bank institution in 2012 for small businesses lending, while Co-operative Bank got Sh5.5 billion during the same year.
Last year, Diamond Trust Bank inked a financing deal with IFC for a $50 million loan to be used for onward lending to the SME sector.
NIC Bank’s interest income from loans during the first quarter of this year increased marginally to Sh2.3 billion from Sh2 billion earned during the same period last year.
