HF hopes to Recoup Sh10 billion in Legacy bad Debt

In order to comply with the Central Bank of Kenya (CBK), HF Group plans to raise new capital and recover Sh10 billion in non-performing loans (NPLs).

As it works to overcome obstacles like litigation that have been in the way, the lender says in its most recent annual report that it wants to accelerate the recovery of the legacy NPLs over a five-year period through auctions and private treaties.

“There is a lot of progress in the resolution of matters under litigation, completion of stalled projects, aggressive sale of the completed office space/residential property, negotiated settlements, and realisation of collateral either via private treaty or auction,” says HF.

“The target is to resolve the entire legacy non-performing loans (Sh10 billion) over a five-year period.”

According to HF, the NPL recovery would increase core tier I and total capital, decrease the statutory credit risk reserve, and result in a transfer to retained earnings.

At the end of the previous year, gross NPLs decreased from Sh8.67 billion to Sh8.48 billion, and the NPL ratio decreased from 22% to 21% while remaining below the industry average of 14%.

The lender has already chosen a transaction adviser to oversee the search and wants to supplement loan recoveries with new raisings of both tier I and tier II capital.

“The Group has appointed a transaction adviser to scout for potential investors for both tier I and tier II capital,” says HF in the annual report.

Following a net loss of Sh682.75 million the prior year, the lender reported a net profit of Sh265.57 million for the entire year 2022.

Despite higher staff costs, the group’s overall expenses decreased by 14.3 percent to Sh2.84 billion.

Core capital to total risk-weighted assets and total capital to total risk-weighted assets for the lender, however, closed at 2.2 percentage points and 2.3 percentage points, respectively, below the necessary CBK minimum.

The ratio of core capital to total deposits was eight percent, which was exactly the minimum required.

According to HF, it has already discussed the current regulatory violations with the CBK and shared a time-bound action plan outlining how and when each violation will be fixed.

Additionally, the lender has received a guarantee that it will continue to receive support this year from Britam Holdings, which holds the largest stake (19.4 percent). A loan of $1 billion from Britam 2021 to HF is due in 2028.

“The group’s significant shareholder (Britam) has confirmed to the directors that they will continue providing business support to the group and the bank for a period of at least 12 months from the date of approval of these financial statements,” said HF.