The merger between the Kenya Commercial Bank (KCB) and the National Bank of Kenya (NBK) is on the brink of collapsing after a parliamentary committee turned it down.

The National Assembly Finance and National Planning Committee has recommended that the National Treasury and the National Social Security Fund, who are the principal shareholders of the latter, should not accept the offer by KCB on the acquisition of 100 per cent shares of NBK, the minority shareholders and other shareholders.

The National Treasury, the committee recommends should seek alternative ways of funding NBK to ensure that the bank is compliant with the Banking Act capital ratios so as to continue lending and taking in more deposits.

Further, the National Bank of Kenya should pursue the Rights Issue way in order to raise enough capital.

The committee which is chaired by Joseph Limo (Kipkelion East), observes that the principal shareholders of NBK are the National Treasury (22.5 per cent) and the NSSF (48.05 per cent) making total shareholding of 70.55 per cent.

It is the view of the committee that NBK is a stronger bank with 86 branches across the country.

“The main challenge facing the bank is core capital to Total Risk Weighted Asser ratio (2.4 per cent) which is below the minimum statutory requirement of 10.5 per cent,” observes the committee.

Current scenario

In terms of core capital to deposits ration, the bank is operated at 2.2 per cent against a minimum prudential limit of 8.0 per cent. The current scenario has curtailed the bank from lending and also taking in more deposits.

The committee notes: “As far as liquidity ratios are concerned NBK is performing well at 40.4 per cent as compared to KCB which is at 35.6 per cent.”

KCB gave an offer bid share price of Sh3.80 and the total value of NBK at Sh6 billion against an independent valuation of per share price of Sh6.10 and a total value of Sh9 billion.

“The offer given by KBC does not reflect the fair value of NBK,” the committee observes.

The MPs further notes that NBK is the principal collector of revenue for Kenya Revenue Authority hence it is a strategic institution of government.

Treasury has since warned that the NBK is likely to collapse if the proposed takeover by KCB  does not succeed.

Suspended Treasury Cabinet secretary Henry Rotich had told the committee that the merger presents an opportunity to avert risk of failure by NBK and prevent a potential banking sector crisis.