NIC Share Sale Realises Sh1.2 Bn for Expansion

NIC Bank is set to stamp its presence in Kenya's financial services scene armed with more operating capital raised from its recent Rights issue.

The mid-tier bank which was looking to raise Sh1.2 billion from the rights issue at the Nairobi Stock Exchange realised Sh1.7 billion from the issue as shareholders applied for 24.6 million shares against the 16.5 million on offer.

Following the rights issue success, the bank is now looking to fund its growth and expansion that will involve venturing into brokerage and corporate financing, increased lending and branch expansions.

"We now have added capacity to carry out bigger transactions and spread our network throughout the country," said James Macharia, the managing director.

While the bank has had the capacity to lend up to a maximum of Sh700 million per customer, the new capital injection will now give enable it to lend up to Sh1.2 billion per customer, placing it in the league of the banking industry's big lenders.

"With the new capital injection we believe that we can now adequately compete with the industry incumbents," reckons Mr Macharia.

With shrinking interest income margins across the banking sector stemming from increased competition and low prevailing interest rates, banking industry players have had to eye other sources of income grow their bottom line earnings.

Even as NIC Bank looks to step up its lending, the bank is looking to non-interest income as the key driver to spur its growth. Income from interest still accounts for a huge portion of total operating income with non-interest income accounting for 34 per cent as at the third quarter of this year compared to 37 per cent in the same period last year.

Analysts had raised questions about strained earnings growth capped by the high cost of deposits while pointing out that NIC's limited branch network hindered the lower cost deposit growth.

But with the bank looking to expand its branch network, fees and commissions as well as foreign exchange trading income are key sources of income that the bank will look to in the future.

"Even with a drop in interest rates that might affect interest income, the income that we expect to derive from non-interest operations will hedge us from that exposure," says Mr. Macharia.

The capital injection is also expected to support the corporate finance deals of NIC Capital, the bank's investment arm.

NIC Capital is eyeing the emerging corporate finance and investment banking market which is seen as having immense growth potential.

Already, NIC Capital is said to be in talks to acquire brokerage firm Solid Investments Securities Limited, with the talks to do so currently at very advanced stages.

"We have been interested in brokerage business for a while now...We are yet to sign any financial agreements but we should see some progress in the next three weeks," said Kevin Bender, managing director NIC Capital.

Mr Macharia said that with the new capital levels that NIC Bank had acquired, they would be able to support transactions and business carried out by NIC Capital.

A seat at the Nairobi Stock Exchange is one of the most coveted assets in Kenya's corporate scene following a freeze on new licences in the mid 1990s that has left CMA holding at least 120 applications.

Because the NSE is a company limited by guarantee, a new member can only be admitted with the blessing of the present 18 members - two of them dormant.

With the successful completion of the rights issue, NIC Bank will now issues a bonus of two shares for every share held by shareholders on the register at the closure date of December 6th subject to Capital Markets Authority approval.

Dealers however don't expect any significant price changes in NIC's share price saying that most of the information had already been factored to the current share price.

The share closed at Sh159 yesterday compared to Sh164 on Tuesday.