Here’s my take on the efforts of the Parliamentary Committee on Finance, Planning and Trade to block the planned takeover of the National Bank by the Kenya Commercial Bank.
First, we must all agree that the committee does not have domain knowledge and experience on how bailouts of distressed State-owned commercial banks should be conducted.
Secondly, that although Parliament has wide powers to oversee what the Executive is doing, that role does not include the power to move in to consummate individual transactions, direct bailout options, and order the bailout methods that should be adopted.
Thirdly, that the powers and roles of the committee in such transactions should be to provide oversight over the process followed and to give broad directions on the legality, or not, of such transactions.
Fourthly, we must agree that in jumping into the fray on the proposed takeover of NBK by KCB, the committee must not pretend that it has powers to micro-manage, meddle and even countermand decisions by the relevant regulatory bodies — in this case — the Central Bank of Kenya, the Capital Markets Authority and the Competitions Authority of Kenya.
These are the entities that possess deep domain knowledge and experience on how bailouts of financial institutions are conducted. Just the other day, a parliamentary committee pretended that it had powers to make executive decisions when it directed that Kenya Airways should be nationalised instead of being merged with the Kenya Airports Authority.
In the present case, the committee has become as meddly as to go to the extent of giving a directive of the restructuring options that should be adopted by the Executive. The way things are going, it should not surprise us if a parliamentary committee pops out to direct the Central Bank on which bank should be closed, or even direct the Capital Markets Authority to suspend trading on a specific company’s shares.
In the current case, the committee issued three major edicts. First, that the National Treasury and the NSSF should not accept the offer by KCB.
Secondly, that the parties should — instead of the merger — seek alternative ways of funding the National Bank.
Thirdly, these two dominant shareholders of the National Bank and the Kenya Commercial Bank should pursue the rights issue option.
These committees must be made to stay in their lanes and to respect the concept of separation of powers.
The National Bank has been under capture of a clique of influential borrowers, including companies associated with insiders who have large shaky loans and, therefore, have vested interests in resisting changes at the bank. Yet, the proposed takeover deserves support because it is so far the government’s best bet at closing the worst chapter in the history of government investments in the banking sector.
For over 30 years, the government has been running around in circles and throwing hundreds of taxpayer millions at this problem without success. All past attempts by the Privatisation Commission to restructure and privatise the bank did not succeed, largely because of resistance by influential individuals who did not want to see their piggy bank go.
Indeed, very few state corporations have received as much taxpayer money, mainly bailouts, shareholder loans and subsidies, as the National Bank. In 1998, the government pumped in a whopping Sh4.5 billion in the form of a shareholder loan to the bank.
Subsequently, in 2003, a decision was made to convert government loans and part of the deposits of the National Social Security Fund that were held in the bank to preference shares. This was done to make the loans the government had pumped into the bank to qualify to be treated as core capital and to shore up the bank’s capital base. The bank’s financial situation kept deteriorating.
In yet another rescue operation, in 2006, the government pumped a whopping Sh21 billion into the bank in the form of Treasury bonds. That did not help.
I think that the Finance Committee of Parliament has behaved irresponsibly by recommending that we should put in more taxpayer money in this bottomless pit. This deal needs support because when you look at it critically, it’s a case where two common shareholders in both banks, namely the National Treasury and NSSF, are proposing to consolidate and rationalise their stakes in the two companies.
More significantly, is a deal like this that will end the signal that the remaining distressed State-owned banks will no longer be artificially kept alive even after they have long outlived their shelf lives.
I have a suggestion: If those vested interests lobbying the parliamentary committee to block the transaction succeed with their schemes, I suggest that the primary regulator of the sector — the Central Bank of Kenya — should just move in and start the process of handing the bank over to the Kenya Deposit and Insurance Corporation to put the bank under receivership. No more taxpayer money should be spent on bailing out the National Bank of Kenya.