Kenya’s five top banks released stable Quarter 1, 2020 financial results with pessimism of their future earnings heavily affected by the Covid-19 pandemic that continues to cause havoc on the economy.
The banks that include KCB Group, Co-operative Bank, Diamond Trust Bank, Equity Group and NCBA recorded higher growth in deposits, loan book, interest income and non–funded income, but cautioned of reduced earnings in the future under the prevailing circumstances.
Deposits for the five grew by 17.7%faster than the 11% growth recorded in Q1’2019while average loan growth went up by 12.7% compared to 7.7% over the same period last year.
Analysts at Cytonn Investment attribute the growth in loans being accelerated following the repeal of the interest rate cap in November 2019, coupled with increased demand in funding as businesses demand working capital to operate in the current tough operating environment.Government securities recorded a growth of 25.9% year-on-year, which was faster compared to the loans, and the 16.1% growth recorded in Q1’2019.
“This highlights the banks’ continued preference towards investing in government securities, which offer better risk-adjusted returns,” the analysts claim. Non-funded income grew by 21.6% y/y, morethanthe10.7% recorded in Q1’2019.
Net profit grew by 8%in the period under review to hit KSh6.3 billion ($58.92 million) from the KSh5.8 billion($54.24 million)reported in the first three months of 2019.
Customer deposits rose by34%to KSh740.4 billion($6.94 billion), following the Group’s acquisition of the National Bank of Kenya while the Group’s loan book hit KSh553.9 billion($5.18 billion),a 19% growth from KSh464.3 billion($4.34 billion)reported in Q1’2019.
Chief Executive Joshua Oigara said the performance falls below expectation and he expects more underwhelming performance over the course of the year due to the COVID-19 disruption.“We have taken measures to conserve our capital, manage costs and keep a keen eye on liquidity. KCB’s balance sheet remained strong, growing 31%to KSh947.1 billion($8.85 billion),” Oigara said in a statement.
Co-operative Bank of Kenya registered a marginal 0.3% decline in profit after tax to KSh3.59 billion($33.5 million)in the period under review from KSh3.6billion ($33.6 million) in Q1’2019.
Profit before tax and exceptional items however, grew by 3.7% to KSh3.7 billion($34.6 million)from KSh3.6 billion($33.6 million) in Q1’2019, with the effective tax rate increasing marginally to 29.9% from 29.6% in Q1’2019.Total assets grew by 10.5%to KSh470.4 billion ($4.39 billion) from KSh425.7 billion ($4.39 million) in Q1’2019, mainly attributable to the 11.5% growth in government securities to KSh115.9 billion($1.08 billion)in Q1’2020 from KSh103.9 billion($972.2 million), coupled with a 9.8% growth in net loans and advances to KSh276.2 billion in Q1’2020 from KSh251.6 billion ($2.35 billion) in Q1’2019.
Deposits also rose by 6.9%to KSh339.6 billion($3.17 billion)in Q1’2020 from KSh317.8 billion($2.97 billion)in Q1’2019.“The group has put in place a comprehensive mitigation strategy intended to ensure full banking services continue being accessible to customers in a safe environment consistent with the Ministry of Health guidelines,” the Bank said in a statement.
Diamond Trust Bank’s net profit hit KSh2.4 billion($22.47 million)in the first three months of 2020 from KSh1.9 billion($17.79 million)over the same period last year with the effective tax rate declining to 30.9% from 33%in Q1’2019.Total assets increased by 4%to KSh385billion($3.6 billion)from KSh370.1 billion($3.46 billion)in Q1’2019. This growth was largely driven by a 6.7% increase in net loans to KSh201.3 billion($1.88 billion), coupled with a 1.9% increase in government securities to Kshs128.2 billion($1.2 billion)from Kshs125.8 billion($1.17 billion)in Q1’2019.
The Bank registered a 0.9%decline in customer deposits to KSh272.8 billion($2.55 billion)from KSh275.3 billion($2.57 billion)in Q1’2019.
On 1 October,2019 NIC Group PLC (NIC) and Commercial Bank of Africa Limited (CBA) completed the merger of both institutions to the NCBA Group. The merged entity recorded profit after tax of KSh1.6 billion($14.97 million)in the first Quarter,2020.
The global pandemic is expected to impact NCBA’s growth objectives over next three quarters. As part of its action plan, therefore, NCBA has taken measures to cushion its customers during this uncertain period that includes extension of loan repayment periods by up to 12 months, restructuring of loans with the Bank absorbing associated bank restructuring charges and waiving of fees on mobile transfers and Pesalink cashless transactions. In addition, the Bank has waived all M-Shwari late payment sanctions,deferred roll-over fees by 30 days and suspended CRB listing for 90 days.
“Since the pandemic began, we have restructured loans worth over KSh30 billion($280.6 million), offering much needed reliefto thousands of our customers. We remain steadfast in our commitment to support our customers to weather this challenge and are supporting their requests with a clear view to ensure recovery post crisis.”
Kenya’s largest bank by market capitalization has withdrawn its recommendation of a KSh9.5 billion($88.8 million)dividend payout to its shareholders.
This withdrawal speaks to the Board’s assessment of risk, post balance sheet date of December31, 2019 and of the Group’s approach to prudent risk mitigation and management. According to the Bank, the global health pandemic has led to a great lockdown which has induced a complex and multi-faceted global crisis of health, economic, and social challenges of an unprecedented magnitude.
Equity Group Holdings CEO James Mwangi says the pandemic’s effects have created a significant drop in the global GDP, and a substantial loss of employment leading to an economic recession which economists are projecting will evolve into a global depression worse than the Great Depression of the 1930s.
“The Equity GroupHoldings Board took a conservative approach that recognizes the emerging unquantified risk of the pandemic and opted to preserve capital in the face of the prevailing uncertainty;a strong capital and liquidity position gives us the strength and capacity to cushion our business and accommodate and walk with our customers during these challenging times,” he said.
According to the Central Bank of Kenya, the banking sector remains stable with a strong liquidity ratio which stood at 51.2%, 31.2% above the statutory minimum of 20%and strong capital adequacy ratios at 18.4%, 3.9%points above the statutory minimum of 14.5%as at the end of April 2020.
There was however a slight deterioration in asset quality, with gross non-performing loans ratio growing by 0.6% points to 13.1%in April 2020, from 12.5% in March 2020 and by 1.1% points from 12% recorded in December.
“This is an indication that the banking sector is feeling the adverse impact of the pandemic as a result of a slowdown in most economic sectors,” CBK states in its latest report.