High forward-looking loan provision in the wake of Coronavirus dent banks’ profits in the first three months of the year.
Kenya adopted the IFRS19 accounting standard that requires financial institutions to provide for unforeseen defaults beforehand.
An analysis of Q1 financial statements for three lenders that released their results last week shows KCB Group, Cooperative Bank Plc and NCBA spent a total of almost Sh14 billion of their operating expenses to cater to loan loss provision.
Cooperative Bank Group’s total operating expenses for instance grew by 20.6 per cent from Sh6 billion to Sh7.3 billion on account of higher loan loss provision and staff expenses.
Its staff costs rose to Sh3.4 billion from Sh2.7 billion while the loan loss provisions nearly doubled from Sh510 million to Sh900 million.
It also realigned Sh15.3 billion in loans to offer our customers on the Covid-19 pandemic.
This saw the lender register flat profits for the three months to March. Its net profit for the quarter stood at Sh3.58 billion against Sh3.59 billion in a similar period last year.
KCB Group, the largest bank in Kenya in terms of asset value reported the highest non-performing loans in a quarter at Sh66.2 billion up from Sh38.8 billion in 2019, following consolidation with NBK which brought on board Sh25 billion in NPLs.
The NPL portfolio is concentrated in trade, personal and real estate segments. This forced the group to increase the NPL coverage to 65.3 percent from 60.8 percent in 2019 Shareholder Returns
The Group posted a higher provision expense—from last year’s Sh1.2 billion to Sh2.9 billion—to cover for downgraded facilities, with expected growth in defaults across key sectors of the economy attributable to the pandemic that has shaken the country’s, regional and global economy.
Even so, the lender posted Sh6.3 billion in profit after tax in the quarter under review, an eight per cent jump from the Sh5.8 billion posted a similar period last year.
Stronger non-funded income lines and interest income boost due to loan book growth drove this growth.
Although NCBA Bank reported the highest growth in net profits of 20 per cent; its operating expense surged to Sh3.7 billion from Sh3.3 billion on an account of high loan loss provision.
“NPLs remain a major issue from legacy accounts for which we continue to provide. Further stress was seen in the digital business as a result of a one-off increase in limits,’’ NCBA MD John Gachora said.
Although he expects the impairments seen in the digital business will normalize during the second quarter, the overall NPL ratio will continue to be impacted negatively by the on-going challenges in the market caused by a coronavirus.
According to CBK, lenders restructured loans worth Sh170.6 billion, representing 5.9 per cent the total loan book as of April which stood at Sh2.9 trillion compared to Sh81.6 billion in March, which accounted for 2.84 per cent of the total loan book Sh2.8 trillion.