NBK Reports Ksh 3.84 Billion Loss, Hit by Compensation Payout; KCB Evaluates Capital Injection
National Bank of Kenya (NBK), a subsidiary of KCB Group, has announced a net loss of Ksh 3.84 billion for the first half of the year, a stark contrast to the Ksh 964.15 million net profit reported in the same period last year. The loss is primarily attributed to a compensation payout of Ksh 2.3 billion to former Member of Parliament Mr. Basil Criticos. The payout stems from a long-standing legal battle over the auction of Mr. Criticos’ sisal farm approximately 16 years ago.
The compensation award, characterized by KCB Group CEO Paul Russo as “significant,” contributed to the escalation of NBK’s costs from Ksh 4.79 billion to Ksh 9.28 billion. Despite personal disagreements with the outcome, Mr. Russo acknowledged the authority vested in the entity responsible for making such decisions and the consequent impact on the organization.
The Court of Appeal ruling in April mandated NBK to compensate Mr. Criticos for the auction of his 15,994.5-acre sisal farm, which was deemed undervalued given its structures, sisal plantations, quarry, and road networks. Although the land had served as collateral, the court recognized the insufficiency of the auction valuation and awarded Mr. Criticos Ksh 2.3 billion in damages against the bank.
While NBK initially contested the claim successfully in the High Court, the outcome was overturned on appeal, leading to the compensation award. Despite the bank’s application to the Supreme Court of Kenya, seeking to challenge the Court of Appeal’s decision, it ultimately lost the case.
The impact of the compensation payout extends beyond the loss reported for the half-year, affecting NBK’s cumulative losses, which have now reached Ksh 9.03 billion from Ksh 5.19 billion. Moreover, the bank’s core capital has seen a 44 percent decline to Ksh 6.22 billion, causing a breach in three regulatory capital strength ratios.
KCB, which had previously invested around Ksh 8.45 billion in NBK to meet capital requirements, may be compelled to inject additional capital to restore compliance. While management explores avenues to rectify the capital adequacy ratios, the financial implications of the compensation award have significantly impacted NBK’s financial standing and potential future considerations.