Kenya Post Office Savings Bank, popularly known as Postbank, is making losses of Sh3 million per day or Sh90 million a month.
Following the cash crisis, the bank’s operations and cost of management are eating into depositors and shareholders’ capital by an estimated Sh1 billion per year.
A memo by the National Treasury seen by the Star casts a dark shadow on the bank’s future amid revelations the management is yet to develop a turnaround plan.
Treasury Principal Secretary Charles Muia said in a memo that the bank is depleting shareholder value.
The trend, which has been a continuation over the years, has led to Postbank posting a working capital of negative Sh15 billion.
The negative working capital was Sh9 billion in 2016 and has been on a high by at least Sh1 billion every year, rendering the business unsustainable.
“It was noted that the company’s working capital was negative over the review period and projected to worsen in the short and medium-term,” Muia said in the April 6 memo to Postbank managing director Raphael Lekolol.
Treasury says it noted that Postbank’s operations were not sustainable during a review of the entity’s budget for the financial year to June 2020.
It recommended that the board submit a turnaround strategy or a restructuring plan for consideration, the same required to meet certain criteria.
Postbank is expected to explain its cost-efficiency and management plans, financial and operational restructuring as well as asset restructuring by way of unlocking the value of non-performing ones.
Treasury also wants the bank to “adopt an appropriate business model that has the potential to generate high revenues and turn around the business to profitability.”
The bank projected Sh2.34 billion in revenue in the financial year ending June 2020, but spent Sh2.6 billion in administrative and operational costs.
But Muia decried that the board was yet to submit its business recovery plan as agreed with the National Treasury during a meeting in January.
The meeting between the Treasury and the bank’s senior management deliberated on the deteriorating financial performance and resolved to pursue a way forward.
Postbank management, the memo reveals, said it had engaged audit firm KPMG to review the entity’s operations, a report from which the turnaround plan was to be anchored.
Muia said in the memo that the approval of the bank’s 2021 budget was conditional on the bank submitting the plan for consideration by Treasury.
“The submission of the plan was meant to be a commitment by the board on actionable strategies and to give assurance to the Treasury that the board is taking remedial measures to reverse the deteriorating financial performance of the bank,” the memo read.
Treasury said that without a recovery strategy in place, it would be unable to finalise a review of Postbank’s proposed budget for the year 2021.
“The turnaround strategy must be approved by the board,” Muia directed.
BOARD MEMBERS SPLITS
Board members are split on the figures put forth by the audit firm with a section saying the targets set will yield nothing for the bank, or rather stand to worsen the situation.
Postbank chairman Ntoros ole Senteu denied claims that the board has delayed in submitting the strategy paper. He was however not clear whether the same had been submitted.
“It is not true….the paper was done and it must be back to the Treasury. The board cleared with the paper and it has been approved.”
“As a board, we finished and reached an agreement to execute. I believe it has been done but will also find out if the paper has been submitted,” the chairman said.
Postbank is wholly owned by the government, hence may be bailed out as is the practice where liabilities of state agencies are defrayed by the exchequer.
Treasury sources indicate that with the prevailing strain on the country’s coffers, a bailout may not be in the offing soon, hence the bank has to focus on a growth strategy.