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This research report was prepared by the Research Department of Old Mutual Securities Limited. Old Mutual Securities Limited is a securities trading company licensed by the Capital Markets Authority (Kenya) for the purpose of facilitating trade on the Nairobi Securities Exchange.

Here are our views on the news making headlines today for Kenya:
NBK half-year profit jumps to Sh1.72bn on sale of buildings.Net profit for the first six months to June shot to Sh1.72 billion helped by sale of the 12 buildings.The lender raised Sh1.24 billion from the property sales, which helped to shore up its core capital ratio in the wake of a long-delayed rights issue.Other than raising cash to shore up its capital base, Mr Ahmed said the sale of 12 branches and two buildings in Molo and Kitui will make the bank more efficient in terms of deployment of total assets.

Our View: This was expected as the bank is predominantly funded through customer deposits, shareholders equity and to a lesser extent borrowings. The bank had outlined its intentions to beef up its capital buffers in 2013 by raising an additional capital of KES 13bn through a cash call a plan which has been iced since then following the regulator’s delays to grant an approval. Given the current macro-economic uncertainty and fading investor confidence on the stock, raising tier 1 capital may not be prudent hence the we believe that the bank might consider tier 2 funding – more specifically DFI funding. The real estate transaction has now marginally lifted the key capital ratio to positive 15.4 per cent as at the end of June, 0.9 per cent above the minimum statutory requirement of 14.5 per cent.
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