CFC Stanbic to capitalise at least half of its net profits
CFC Stanbic Bank will retain at least half of its net profits this year to boost its capital base in the run-up to the rights issue expected in the second quarter of next year.
The move, announced on Monday by the bank’s Managing Director Greg Brackenridge, may reduce this year’s dividend payout to shareholders.
CFC Stanbic Bank needs additional capital to stay within Central Bank of Kenya (CBK’s) statutory margins until the cash call expected in the next six months. CFC’s core capital to deposit ratio had shrank to 9.9 per cent as at the end of September, about 1.9 percentage points above the statutory minimum.
The core capital to total assets ratio of nine per cent was one percentage point above CBK’s minimum limit, while the total capital to total assets ratio was two percentage points above the margin.
"We could retain up to 50 per cent of our earnings as a stop-gap measure to strengthen our capital position before the rights is completed," said Mr Brackenridge.
On Monday, shareholders of the firm approved the rights issue and a new capital structure at an extra-ordinary general meeting. The bank’s management said it was targeting having the cash call in the second quarter of next year, subject to Capital Markets Authority and Nairobi Securities Exchange approval.
"To continue the growth story capital is required due to minimal headroom. If the 2011 growth rate is maintained the bank will run out of capital in six to nine months," the bank told its shareholders.
CFC has been conservative in distribution of its earning in the past, paying out 12.3 per cent of its net profits last year and nil in 2009. The bank had Sh6.4 billion in retained earnings as at end of September this year. It made Sh1.4 billion net profits by the third quarter, equalling total net earnings for 2010. Co-operative Bank and Standard Chartered Bank have also announced intentions to use retained earnings to boost their capital base before engaging the market with hopes that growth in 2012 will not be as robust.
The shareholders approved creation of 200 million new ordinary shares, raising the authorised share capital by a billion shillings to Sh2.3 billion.
The passing of the resolutions had the backing of Stanbic Africa Holdings based in the United Kingdom-- which is CFC’s anchor shareholder with a 41.41 per cent stake. This raises the probability of success of the capital call if the holding company takes up all its rights.
CFC’s loan book grew by 16.6 per cent to Sh68.7 billion while deposits grew by Sh6.8 billion to Sh79.5 billion in the nine months to September.
The lender’s share price rose 4.5 per cent yesterday to close at Sh40.25, with 300 shares traded. Stanchart, Co-operative Bank, NIC Bank and Consolidated Bank are other financial institutions which had low adequacy ratios as at end of September. NIC Bank has since acquired a Sh1.8 billion loan from Proparco earlier in the month, while Stanchart will tap the market or its anchor shareholder for more capital.
Co-operative bank hopes to ride on retained earnings till 2013 when it intends to do a rights issue.
This article was originally posted on Sustainable Development Africa Platform
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