UBA Kenya has defied coronavirus effects and made 199 per cent pretax profit increase in Quarter 3.
United Bank for Africa, Kenya has announced its third quarter 2020 financial results, registering a 199 percent jump in Profit Before Tax (PBT) to stand at Sh348 Million ($3.132 million), compared to Sh116 Million ($$1.044 million) reported in September last year.
The performance growth was largely driven by efficient management of the balance sheet as well as cost optimization, amid challenging business operating environment.
According to a statement from the financial institution, the bank’s asset base also grew by 37 percent mainly due to additional investments in Fixed Income securities.
According to Kenya National Bureau of Statistics (KNBS), Kenya’s economy slowed down during the first quarter of 2020 compared to the corresponding quarter in 2019.
The loan book and deposits increased slightly by 10 percent and 25 percent respectively due to financial support given to our customers as they diversified their business during the pandemic.
Commenting on the Q3 financial results, Kehinde Omirinde, Acting CEO, UBA Kenya, said “The bank’s solid performance despite the outbreak of a global pandemic, is a clear indicator of the effectiveness of our corporate contingency strategy.”
“We shall endeavour to continue making strategic investments in product development and innovation providing our customers with excellent service.” he added.
UBA Kenya is a subsidiary of UBA Plc and licensed by the Central Bank of Kenya.
The Bank has been operating in Kenya since 2009 offering a full range of banking products and solutions.
Financial sector in Kenya:
A report on the banking sector in 2020 by KCB notes that the banking sector has encountered numerous challenges over the past few years. From the potential impact of IFRS 9 on profitability to concerns surrounding the deteriorating asset quality. However, none has been more conspicuous than the implementation of the interest rate caps. Despite this, time and again, the sector has proved resilient to short term shocks and periods of possible distress.
Now, the sector must unravel the mystery of the Coronavirus, arguably the biggest challenge facing the Kenyan banks to date, as the healthcare crisis is primed to effect most of the key line items that determine a bank’s profitability. Further, the full impact of the virus is yet to be established and may potentially bear far reaching and adverse consequences on the global economy.
The COVID-19 pandemic has had a telling impact on an otherwise fragile economy, occasioned by mass layoffs in distinct sectors amid subdued demand in a weakening business environment.
In Kenya there are a total of 38 commercial banks, 1 mortgage finance company, 13 microfinance banks, 9 representative offices of foreign banks, 74 foreign exchange bureaus, 18 money remittance providers and 3 credit reference bureaus.
According to a recent cytonn research on the banking sector the financial inclusion in Kenya has continued to rise, with 82.9% of the adult population able to access formal financial services. This has largely been driven by digitization, with Mobile Financial Services (MFS), transfer and lending, rising to be the preferred method to access financial services in 2019, with 79.4% of the adult population using the channel.
Despite the number of commercial banks in Kenya reducing to 38, compared to 43 banks 5-years ago. The ratio of the number of banks per 10 million population in Kenya now stands at 7.1x, which is a reduction from 9.0x 5-years ago, demonstrating continued consolidation of the banking sector. However, despite the ratio improving, Kenya still remains overbanked as the number of banks remains relatively high compared to the population.
The risk of loan defaults remain elevated following the Coronavirus pandemic that has affected many businesses globally due to disruption in the supply chain and reduced demand due to constrained cash flows. Despite an improvement in the operating environment in line with the relaxation of Coronavirus measures, we foresee increased provisioning in the sector as compared to FY’2019, given that most of the sectors that had been adversely affected by the pandemic are not expected to fully recover by the end of FY’2020.
“Additionally, we expect the higher provisioning requirements as per the IFRS guidelines to further subdue the profitability of the banking sector during the year,” reads a section of the study by Cytonn.