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Thursday, July 19, 2007

NBK 1H 2007 Results

So what does all this mean?
Is NBK out of the woods?

The net interest income has significantly dropped in 2H 2007. As Marambii opined earlier during the AGM that the GOK was being charged interest at 15% which was a great rate by all means! But will now receive a lower rate. This will be a drag on earnings.

The largest gain is from the reduction of Loan Loss Provisions... Hmmm... what it means is that NBK with the "assent" of the CBK did not fully provide for these dud loans!

NBK claims it has enough securities to cover the "open" bad loans i.e. loans not provided for thus they do not see that as a problem. Of course, in Kenya, it means a lengthy court process to get much out of defaulters.

Nevertheless, NBK can start growing by pursuing new lending. The challenge will be how to deploy the Billions that the GOK will repay NBK. Who to lend to? At what rate? At what risk level?

The GOK & NSSF hold preference shares & I expect they will demand Preferred dividend payments if NBK pays Ordinary dividends.

The options to mitigate this are:
  • Negotiate a conversion from Preferred Shares to Ordinary Shares which would dilute the current shareholders' stake.
  • Pay off the GOK by exchanging the T-Bonds for the Preference shares but this will result in reduced income.
Well, it has been a long, hard road for NBK. I think the shares are over-valued but there is potential for strong profit growth with the reduction in Loan Loss Provisions. If the Balance Sheet is restructured there is a possibility of a takeover.

Stanbic remains a suitor but 2 years down the line since CFC-Stanbic caters to the middle market but does not give Stanbic the heft it wants across all sectors of the economy. NBK's reach among the masses is probably #3 behind Equity & KCB.

There is a distinct possibility of a Nigerian bank taking a stake in NBK as they expand across Africa.

38 comments:

pesa tu said...

yeah to NBK now the hard work of building the loan book.

ka-investor said...

@CT: which Nigerian bank are your talking about?

coldtusker said...

United Bank of Africa but only AFTER the Balance Sheet (NBK) is substantially restructured.

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