NSSA offloads FML shares

Published: 31 October 2013

THE National Social Security Authority, the majority shareholder in Capital Bank has authorised sale of the bank's 21 percent shareholding in First Mutual Life to partly pay off depositors as the national pension fund winds up the bank's operations.

NSSA initially invested $24 million in Capital Bank last year, and in February this year, it converted its deposits in the bank to equity in a rights issue meant to capitalise the bank. As such, the total invested in the bank by way of equity amounts to $30,2 million equivalent to 86 percent shareholding of Capital Bank.
NSSA resolved to invest in Capital Bank with high expectations of return on investment. This however did not materialise as the debtors' book did not perform as had been intimated by the curator.

Instead, the fresh capital injected into the bank was used to settle old depositors leaving little or no funds for new lending. The bank rebranded in an effort to attract depositors but non-performing old loans militated against the revival of the bank.

Even a fresh cash injection of $6 million by NSSA in a rights issue did not help. Instead the financial situation of the bank worsened with capital levels falling from $20,1 million in March last year to $17,3 million by August 2013.

The NSSA board resolved to discontinue the operations of the bank by paying off all creditors and depositors and it has since applied for a micro-banking licence.

"The first port of call in the process of managing down the bank is the FML shares that the bank holds amounting to 76 million," said NSSA.

"The proceeds will be used to partly pay off depositors. Since NSSA already enjoys a direct controlling interest in FML, the authority has already authorised the disposal of the shares.

"Where bank resources are not enough, then shareholders will be called upon to provide resources to satisfy outstanding liabilities. The bank will have to follow up on all recoverable debts to avail funds to pay off depositors and other creditors.

"It may take time to recover some of this money but pressure will be exerted on borrowers to make sure payments are made. In this exercise, even debts that have been written off in the bank's books should be recognised in this effort to recover amounts owed to the bank.

"Non-payment of loans is the root cause of the bank's problem therefore stiffer measures will be used to recover the funds owed to the bank."
- bh24