Business Daily<\/a> (Nairobi)<\/p>\nGeorge Ngigi<\/p>\n
1 December 2011<\/p>\n
Jamii Bora Bank has sold-off Sh370 million bad debts to a financial consulting firm in a bid to clean up its balance sheet and release the tied-up funds for re-investment.<\/p>\n
Chief executive of the micro-lender, Samuel Kimani, said the loans were sold to Jamii Bora Africa, the parent company of the lender, which will take up the responsibility of collecting debts from defaulters.<\/p>\n
“We sold the bad loans at a discount to clear our books,” said Mr Kimani, revealing that the lender gave up loans worth Sh370 million for Sh220 million payment.<\/p>\n
The sell reduced Jamii Bora’s gross non-performing loans to Sh160 million as at end of September from Sh430 million at the same time last year.<\/p>\n
The lender’s loan book shrunk to Sh325 million in September from Sh596 million last year. Jamii Bora Africa has common shareholding with the bank but is a separate entity from the lender. Last year, Jamii Bora merged with City Finance Bank in a deal that saw the bank’s customer base grow but also take on a huge non-performing loan portfolio.<\/p>\n
The deal pushes back the poor loan book to the original management as Jamii Bora — which has approximately 13 per cent shareholding in the bank — is the anchor shareholder in Jamii Bora Africa.<\/p>\n
The stake owned by Jamii Bora in the bank has shrunk following entry of Messrs Asterisk which is putting Sh320 million in the institution, equivalent to about 46 per cent ownership of the bank.<\/p>\n
The new investors are keen to clean up the bank’s loan book by cutting provisioning costs while off-loading unproductive assets.<\/p>\n
“This is purely an issue of how we can recover. It will now enable us to concentrate on our core business which is to grow business and not doing recoveries,” said Mr Kimani.<\/p>\n
The capital injection by the new investors combined with a rights issue of Sh270 million concluded at the end of September. It will see the bank’s core capital rise to Sh800 million, surpassing the statutory requirement of Sh700 million set by the Central Bank of Kenya . The transaction, referred to as debt factoring, is the first in the country following failure of a similar attempt by the National Bank of Kenya in 2005 which failed to agree with potential buyers on the discounting rate.<\/p>\n
Risk factor<\/strong><\/p>\nThe price of the bad loans is based on the probability of collection, which is the risk factor borne by the buyer.<\/p>\n
The Capital Market Authority is preparing new regulations that will facilitate selling of loan portfolios to third parties by lending institutions.<\/p>\n
The Bill, which has been forwarded to the Ministry of Finance for submission to the Cabinet, will provide banks and other lenders with a market to convert outstanding loans into tradeable securities. The sell-off of loans will be at a discount — meaning a bank receiving a lower interest return in exchange for immediate cash — with liquidity being made available for further lending.<\/p>\n
The loans are pooled into a bond that is then sold in small portions to investors.<\/p>\n
Jamii Bora Bank reported a loss of Sh46.6 million in the nine months to September, which was an improvement from a loss of Sh65.2 million over the same period last year.<\/p>\n
Injection of new capital saw Jamii Bora’s liquidity ratio rise 26 per cent above the statutory minimum of 20 per cent with the management stating that this gave them room to invest in government papers being issued currently and also participate in overnight lending.<\/p>\n
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Business Daily (Nairobi) George Ngigi 1 December 2011 Jamii Bora Bank has sold-off Sh370 million bad debts to a financial consulting firm in a bid to clean up its balance sheet and release the tied-up funds for re-investment. Chief executive of the micro-lender, Samuel Kimani, said the loans were sold to Jamii Bora Africa, the parent company of the lender, which will take up the responsibility of collecting debts from defaulters. <\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-3817","post","type-post","status-publish","format-standard"],"yoast_head":"\n
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