Don’t let pensioners’ money go into the bottomless pit of NBK

A National Bank of Kenya branch in Nyeri town on April 28, 2016. PHOTO | JOSEPH KANYI | NATION MEDIA GROUP

What you need to know:

  • Central Bank of Kenya has demanded that the National Bank of Kenya shore up its capital and make sure that it is in compliance with capital adequacy requirements.
  • I am opposed to NSSF lending Sh3 billion to a bank that as recently as March 2015 was heavily sanctioned by CBK for creative accounting and forced to make huge provisions on its loan book.
  • The NSSF should be thinking about pulling out pensioner’s money from National Bank of Kenya and putting it in investment vehicles where it can earn more.

As we all know, the Central Bank of Kenya has demanded that the National Bank of Kenya shore up its capital and make sure that it is in compliance with capital adequacy requirements.

We also know that a plan by the management and board of the bank to raise capital through a rights issue was scuttled by the Capital Markets Authority.

What options are open to the bank? Here is news. I have it on the authority of an impeccable source that the board and management have come up with a fantastically creative idea: they have proposed that the National Bank of Kenya borrow a five-year loan of Sh3 billion from the National Social Security Fund (NSSF), the idea being that this would then qualify as tier-two capital.

I am opposed to the pensioners’ body lending such a huge amount to a bank that as recently as March 2015 was heavily sanctioned by the regulator for creative accounting and forced to make huge provisions on its loan book. Why are we using pensioners’ money to bail out this sick bank?

Until the National Bank is turned around to meet the industry’s profitability standards, until its performance is brought to the level of its peers — in terms of cost-income ratios, quality of the lending book, and return on equity — no more pensioner’s money should be sunk into this bottomless hole.

Instead, the NSSF should be thinking about pulling out pensioner’s money from National Bank of Kenya and putting it in investment vehicles where it can earn more.

Mind you, the reason the NSSF is today a big shareholder in unprofitable State-controlled banks such as National Bank and Consolidated Bank of Kenya is because pensioners were not allowed to have a say on how and where their hard-earned savings were invested.

QUALITY OF INVESTMENT

Unlike other retirement schemes, the NSSF does not hold annual general meetings where contributors can interrogate the quality of its investment portfolios. The fund’s first annual general meeting was held in 2012.

NSSF contributors do not receive regular statements to allow them to track how their savings are growing. In truth, nobody cares where pensioners’ money is invested and whether it is earning good returns.

If ability to generate good returns was the main criterion for deciding where the NSSF money is invested, the worker’s body would not be paying those meagre lump sum amounts to retirees.

If the pensioners’ body was being managed well, the ratio of administrative expenses to the fund’s net assets would be way below what it is now. At one time, administrative expenses consumed almost half of the monthly contributions.

With better management, money earned from investments, distributed to members, and credited to their accounts every year-end would be much higher.

Billions of shillings of member’s earnings and savings sit in a massive suspense account. The National Treasury should move the money and scuttle such fantastic ideas as the latest one from the National Bank management.

Why are we trying to make the capital structure of the bank more complex? Aren’t we eroding the attractiveness of the National Bank to future investors?

MISMANAGED BANKS

I do not know what it will take to make the government appreciate the fact that the NSSF does not exist to help bail out mismanaged State-owned banks.

We must not forget that the shareholding stake owned by the NSSF in the National Bank was not made because somebody thought that the investment would give pensioners a good return.

The fund’s money in this bank was put there because the government was either implementing a rescue plan for the bank or the NSSF was forced to convert some of its deposits into equity. A return on pensioners’ hard-earned savings was never a consideration.

Indeed, successive governments have persisted in treating the NSSF as an appendage of the State from which they can get resources to rescue badly run banks. Yet we all know that the NSSF belongs to pensioners and that the State does not have a single cent in there.

Where is the voice of the ordinary NSSF contributor in the decision to pump Sh3 billion of their money into the National Bank?

Beyond fiduciary responsibility of protecting the interests of the pensioner and the fact that, at the end of the day, NSSF debts and liabilities are more or less contingent liabilities on the books of the government, the State has no business in this institution.

I keep praying that some public-spirited member of Parliament will one day come up with a Bill to amend the NSSF Act to allow members to elect trustees.