From a Sh3.3bn profit to a loss of Sh1.2bn, what happened at NBK?

After Wednesday’s move to send National Bank CEO Munir Ahmed and five other top managers on compulsory leave, focus now shifts to the role of the board in the bank’s troubles and its apparent reluctance to act when the institution seemed to be headed in the wrong direction.

Indeed even after the six managers were asked to leave, the board maintained its praise tone, giving mixed signals on the circumstances of the suspensions.

“To protect careers of professional bankers now under temporary suspension against undue harm from incorrect media reporting and to abide by policy in place at National Bank of Kenya for Human Resource Management, we wish to make following facts widely known. The management in place has performed well over the last 3 years. However, due to increasing negative publicity, the board has felt the need to clear the air by conducting a thorough internal audit, to address all claims in absence of managing director and 5 other directors. They will as such be invited to defend any faults reported in their conduct by the audit process,” a statement from the board said.

The statement went ahead to credit the management with achievements including a successful rebranding and branch network expansion.

This leaves the big question of who exactly pushed Mr Ahmed and his team to jump. Was the board really committed to the move or is it a cooling gesture?

The statement promised appointments on acting capacity within 24 hours.

However, nothing followed the commitment and no word came from the board on Thursday’s grilling that the CEO was meant to attend. This despite a flurry of statements from NBK prior to the suspensions and announcement of a Sh1.2 billion loss.

The lender which spent the better part of 2015 sending soothing statements and fighting bad press found itself in an awkward position, announcing the suspensions ahead of a profit warning and the shocking 200 per cent drop in profitability.

The board vehemently declined to comment on the matter despite repeated calls from the Sunday Nation.

Apart from the CEO, others forced out were the executive director in charge of Corporate and Institutional banking Boniface Biko, head of credit George Jaba, acting chief finance officer Wycliffe Kivumira, ICT director Mohamed Abdalla, and suspended chief finance officer Chris Kisire.

Clearly the NBK board had kept a tight lid over a volcano which eventually erupted with the surprise loss results being released minutes before midnight, underlining the shameful turn of events.

The staggering full-year loss of Sh1.2 billion was in sharp contrast to a rosy picture painted of the lender until late last year.

NBK had celebrated a huge gain in the third quarter of 2015, reporting a Sh3.3 billion profit before tax.

The bank whose majority shareholders are workers through the NSSF and the government through the Treasury, blamed the sudden fall on loan loss provisions which increased more than six times from Sh525.3 million to Sh3.72 billion.

The listed lender’s gross non-performing loans jumped 63 per cent to Sh11.76 billion, revealing the ugly loan book previously covered by the board in a series of media briefings from June last year. Other sources said the bank’s loss could actually be higher than Sh1.2 billion.

FINGER POINTING

Critics had begun pointing fingers at some of the expansion schemes.

But the bank was quick to defend itself. “The Board of Directors of the National Bank of Kenya sternly warns the media against publishing unsubstantiated claims against the bank. The gist of these are: that we have facilities granted to National Amanah customers without security, or without due diligence, that it is an easy avenue for accessing funds and at a lower price; or it is an avenue for executives to provide loans to family and friends; or that loans once granted are swiftly wired out to other banks. These are unsubstantiated allegations about Amanah products,” the board said in June.

A separate statement in August praised the bank’s loan book growth, which was said to have closed on June 30, 2015 at Sh71 billion in a record growth rate of 31 per cent year-on-year since 2013.

NBK even expressed the urge to lend more “but may soon run out of shareholder capital needed by the regulator for higher volumes,” justifying the need for a rights issue.

The NSE-listed lender, which sold off several assets last year to fund its business, closed the year with total assets worth Sh125.4 billion while its total liabilities stood at Sh114.4 billion.

As the board went on to stand by the management against what they termed as “malicious media coverage”, sources within the bank painted a polarised environment.

Senior staff confided in the Sunday Nation that two camps of employees would soon emerge after the bank engaged in a transformation set to place NBK among the top five banks by 2017.

The rebranding of the bank from green to yellow colours is said to have created two opposing teams distinguishing those who had been in the bank prior to the reform and those who joined later.

The Yellows were better remunerated while the Greens continued earning “peanuts” doing the same job.

The former team is said to have been disregarded as those who had failed the bank and were meant to observe from the new team how banking business is done.

Last week’s purge is said to have netted mainly members of the Yellow team with those in green seemingly delighted by the outcome.

Indeed several statements from NBK since June last year have carefully credited any gains to the transformation agenda by the CEO who joined in 2012.

At a special media briefing to explain the bank’s five year transformation strategy, Mr Ahmed defended his track record saying the strategy was in good progress contrary to critics.

“This bank had no strategy in 2012 when I joined and with the current 43 direct competitors in the industry, something had to be done about high credit risk exposure, low per capita revenue and poor productivity. Our income has grown 21 per cent in the last two years, loan book quality improved, more branches opened and business diversified, we are making good progress,” the CEO said.

The latest turn in fortunes now raises questions on the validity of the bank’s comforting numbers since the transformation plan kicked off.

The bank’s board did not recommend the payment of dividend for the financial year under review.

The government lost control of the bank in 2011, after NSSF decided to go it alone in decision-making.

Then chaired by Mr Adan D. Mohammed, NSSF flexed its muscles, replacing government appointees Jennifer Riria, Paul Ngumi and Alfred Juma with Mohammed Hassan (who was later voted as the bank’s chairman), Sylvia Kitonga and Erastus Mwongera.

The new catch added to NSSF directors sitting on the bank’s board who included Francis Atwoli (Cotu boss) and then NSSF managing trustee Alex Kazongo, giving the Fund five of the bank’s eight voting rights.

A few months later the board retired Mr Reuben Marambii who had taken over in 1998 from Mr John Simba.

Mr Marambii steered the bank to declare profit in 16 years and for the first time paid dividends to its shareholders in 2010.

In June 2012, Mr Ahmed was tapped from Standard Chartered Bank where he had worked for 16 years. It was the first time the National Treasury had no say on who was to head NBK.

Mr Ahmed had a brief to help diversify NBK from consumer lending, which accounted for over 75 per cent of its loan book, to corporate lending, investment banking and insurance to support its growth.

Big questions now surround the real motive of the board in sending the six managers home on temporary suspension.

The close ties between the board whose oversight mandate seems to have been overridden by the protector role as well as giving blind support to the CEO may come to scrutiny even as the audit continues this week.