The National Bank of Kenya (NBK) suffered a net loss of Sh3.84 billion for the six-month period that ended in June as a result of paying out Sh2.3 billion to a former member of parliament as restitution for selling his sisal land at auction around 16 years earlier.
The payment to Mr. Basil Criticos had to be made by NBK, a completely owned subsidiary of KCB Group, which resulted in the loss as opposed to the net profit of Sh964.15 million reported during the same period last year.
According to Paul Russo, chief executive of KCB Group, the “significant” award increased NBK’s expenditures from Sh4.79 billion to Sh9.28 billion, according to an interview with the Business Daily.
“You can be positive about your case. Unfortunately, you do not get to decide,” Mr. Russo replied.
“On a personal level, I disagree with the decision, but I accept it because it was made by an organization that was given the authority to do so. We deal with the effects every day.
In April, the Court of Appeal ordered NBK to pay Mr. Criticos the billions for selling his sisal plantation at auction some sixteen years earlier.
The judges determined that the auction of the 15,994.5 acres in Taita Taveta that belonged to Mr. Criticos in September 2007 was undervalued given that the area had structures, sisal, a quarry, and road networks. The property had served as security.
The guarantor appealed the High Court decision against which NBK had initially prevailed in defending the claim at the Court of Appeal.
The Court of Appeal overturned the judgment of the High Court and gave Mr. Criticos Sh2.3 billion in damages against the bank.
NBK attempted to challenge the Court of Appeal’s ruling in the Supreme Court of Kenya but was unsuccessful.
Based on independent outside legal counsel, the KCB directors had expressed confidence that NBK would be successful in having the Supreme Court reversed the judgment on the merits. Since no major liability was expected to result from this, the group had not made any provisions for it as of the end of December.
The NBK’s total losses have increased from Sh5.19 billion to Sh9.03 billion as a result of the half-year loss. Its core capital has also decreased by 44 percent to Sh6.22 billion, putting it outside of compliance with three measures that the regulator uses to evaluate a bank’s capital strength.
KCB may need to inject more capital into NBK after investing an estimated Sh8.45 billion in it by the end of last December to bring it into line with capital regulations.
