First Community Bank (FCB) has disclosed a shortfall of more than Sh1 billion in core capital, revealing the extent of the crisis that pushed its owners to sell a majority stake to a Mogadishu-based lender in a rescue deal.
The small lender’s latest books of account show that the core capital dropped from Sh1.65 billion in September to negative Sh331 million in December, sending it into a breach of the capital strength ratios required by the Central Bank of Kenya (CBK).
The unexplained fall in core capital within three months pushed its owners to resort to selling a 62.5 percent stake to Mogadishu’s Premier Bank Limited (Somalia) for Sh2.8 billion.
Premier Bank was offered 10.8 million new shares to inject in Sh2.8 billion to boost the financial health of FCB, which as of December required more than Sh1 billion to comply with CBK rules. The deal was expected to have been completed by last week.
FCB sunk into a net loss of Sh224.57 million in the year ended December, reversing a net profit of Sh416.6 million a year earlier.
FCB, which last year suffered panic withdrawals, saw customer deposits drop by 36 percent to Sh13.74 billion from Sh21.48 billion a year earlier.
More than half (Sh4.43 billion) of the Sh7.74 billion drop in deposits during the year came within the last three months of the year, coinciding with the period it suffered a small bank run.
The panic withdrawals occurred in October last year on what the institution blamed on a system hitch that hit its operations.
Customers who lined up to draw their cash claimed the bank was only permitting withdrawals of less than Sh10,000 a day and had placed limits on cheque transactions.
The bank’s problems became public after it said it was experiencing system disruptions that affected most of its services, creating a backlog.
This triggered panic withdrawals raising fears that it was headed for a full-blown bank run.
FCB’s core capital to total risk-weighted assets ratio stood at zero percent compared to the required minimum of 10.5 percent.
FCB commenced operations on June 1, 2008 as the first fully-fledged Shariah-compliant bank in Kenya but has been in breach of capital ratios for the past five years.
The sale of the controlling stake in FCB to the Premier Bank is the latest rescue deal in the banking sector.