How State’s attempts to rescue NBK failed, leading to takeover

National Bank of Kenya (NBK) was started with nationalistic zeal seemingly to drive the nationalism agenda at that time. The plan, however, went horribly awry. In the last instalment of the privatisation series, Special Correspondent, PATRICK MWANGI, traces NBK’s crisis-ridden tenure during which attempts were made to rescue it through massive capital injections to no avail, and whose imminent collapse was only averted by being bought out by KCB Group this year.

National Bank of Kenya, incorporated on June 19, 1968 and officially opened on November 14, the same year,  has always been the big boy of the banking sector, that somehow constantly managed to soil itself despite repeated attempts to clean it up.

Attempts to get the bank back on track, after its many slumps, always floundered on the back of fraudulent banking practices, and sheer theft by top managers of the institution.

For a long time after it was established, the bank remained in the shadows of its more illustrious peer, KCB Bank, that the Government paved its way to become a major financial player.

Though NBK started asserting itself in 1980s by becoming a pioneer in computerisation and banking technology it was soon caught up in the political games of the time with the bank turning into a playground for the political power brokers of the regime of former President Daniel arap Moi, who took loans they had no intention of repaying. 

It was to NBK that the political system turned to when it wanted to fund what were essentially politically motivated economic schemes. In 1991, National Social Security Fund (NSSF) placed a fixed deposit of Sh2 billion in NBK, a princely sum in those days. 

This would turn out to be very significant because it would weld NSSF inextricably to NBK, and end up injecting billions of workers money into the loss-making bank. 

As it were, when NSSF needed to uplift the fixed deposit, NBK did not have the money to pay it back. As a consequence, this money was eventually converted to equity, and NSSF has become part of the messy roller coaster that has been NBK over the years.

As part of its privatisation programme, the Government included NBK as one of the parastatals it would divest from. The bank’s board announced in March 1994 that the shares of NBK would be floated on the Nairobi Securities Exchange (NSE).

Subsequently, NBK floated 20 per cent of its shares in October the same year. At that time, the NBK board announced that NSSF had acquired 32 per cent of the bank’s shareholding. 

The share issue was very successful, oversubscribed three times over. It looked like good times were finally here. Indeed, in its next financial year, the bank posted Sh429 million profit, doubling the figure it had attained in 1993.

By 1999, the bank was in dire financial straits, and the Central Bank of Kenya (CBK)  was mulling closing it down. It dispatched its director of banking, Reuben Marambii, to the bank to review its operations and see whether it could be saved.

After three months, CBK decided the bank still had a chance, and appointed Marambii as its managing director to oversee the rescue. The Government injected Sh4.5 billion to recapitalise it. 

Crosshead

One of the most significant restructuring initiatives Marambii undertook was overseeing the conversion of the huge amounts NBK owed to depositors into equity.  This was particularly significant for NSSF, because it saw its shareholding rise to 48 per cent, becoming the dominant shareholder. The Government held 22.5 per cent, while private investors held 22.44 per cent.

The NSSF shareholding would be an albatross around the bank’s neck, because it forced the pensions fund to repeatedly rescue it, to forestall its collapse with workers money.

In 2008, the Government  decided to privatise NBK. The plan was to offer 25 per cent of the shareholding to a strategic investor, and float 40 per cent on the NSE. The plan, however, collapsed when NSSF refused to play ball. It said the restructuring of the shareholding and balance sheet would see it lose a lot of workers money, and this was, therefore, unacceptable.

After 14 years at the helm of the NBK, Marambii (now deceased) finally left in June 2012. He had spent 10 painstaking years coaxing NBK back to profitability and viability, and had paid a dividend 12 years after taking over.

Ahead of his retirement he said: “My mandate when I was appointed was to stop the run on the bank, and reverse the deficit in the profit reserves that had been caused by massive provisions for bad loans. I was successful in doing both.” 

But the ghosts of fraudulent banking practices was not done yet, and returned with a vengeance when the new managing director, Ahmed Munir, took over. 

In three short years, NBK was back into the hole Marambii had spent over a decade pulling it out of. In 2015, the bank plunged into a Sh1.2 billion loss. Alarmed, the board fired Munir alongside five other senior managers in April 2016.

It must have been a major relief to the financial markets and stakeholders when KCB Group announced that it was buying NBK and making it part of its operations.