Even if the subscription rate is 50% it should be sufficient to raise tier 2 capital ratios, but they’ll be pressured to raise core capital again by about 2013. It should be more interesting to see how the bank will the bank function if the issue is undersubscribed. Well they continue to invest in low risk assets like govt securities which will grow deposits faster. As KRA’s tax collector, what happens when they collect tax receipts in July will that push deposits higher. You just have to look at the growth in the loan book and contingent liabilities in H1 up 10 billion each and a 28 billion rise in deposits. Isn’t this what is straining the capital base (as well as the poor asset returns). The problem at this point are the risk weighted assets (with 100% weighting) especially the contingent liabilities. Letters of credit, guarantees and acceptances went up from 33 billion to 43 billion in H1 and while other contingent liabilities are up 12 billion to 31 billion. Why are letters of credit (etc) growing so fast considering they carry the same credit risk as ordinary loans and why aren’t they generating high enough fees? Is KCB accommodating too many people who are in the import/export businesses? KCB management might tell us that gross NPLs grew marginally while Net NPLs declined in H1 but is the management taking unnecessary risk? Raising portfolio risk without assessing the risk return decision and thus hindering their ability to comply with the regulatory requirements? One needs to start scrutinizing those off balance sheet items.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden