Banks in Sh17b hole over Covid restructured loans

By Lewis Njoka
Sunday, November 22nd, 2020
Covid-19 vaccine.
In summary
    • Despite banks reporting depressed earnings, the regulator will not lose sleep over the evolution of sector earnings, saying the industry remains stable by virtue of strong capital and liquidity reserves.
    • The monetary policy committee (MPC) meets Thursday to discuss review the benchmark lending rate and discuss pandemic recovery efforts.

Lewis Njoka @LewisNjoka

The Coronavirus pandemic has dealt a blow to the otherwise profitable banking sector, wiping off billions from the books of lenders in quarter three of 2020.

Unfortunately, with the surge in number of infections, Kenya is already in the second wave of the pandemic and it is not known when this will slow down.

An analysis of Quarter Three financial results shows that the five banks: Kenya Commercial Bank, Equity, Absa, Coop Bank and Standard Chartered lost Sh17 billion in profits after tax, compared to the same time last year.

“This has been a challenging period for the business, staff, our customers and the economy,” said KCB Chief Executive, Joshua Oigara, while announcing his company’s Q3 financial results.

In terms of percentages, Absa Bank, formerly Barclays, was the worst hit recording a 51 per cent dip in profits compared to the same time last year. 

It was followed by KCB, Standard Chartered, Equity Group and Coop Bank having recorded 43, 31, 14 and 10 per cent dip in profits, respectively.

Profit after tax

In terms of value, KCB recorded the highest dip in profit after tax compared to same period last year at Sh8.3 billion followed by Absa bank with a Sh3 billion decrease.

Equity Group, Standard Chartered and Cooperative Bank posted Sh2.5, Sh1.9 and Sh1.1 billion decrease in after tax profits respectively.

All banks that have released results so far attributed the huge decline in profitability to increasing provision for bad debt in response to the uncertain business environment created by Covid pandemic.

Over the period under review Absa increased its provision for bad debts by 147 per cent to Sh7.6 billion, while KCB increased theirs to Sh20 billion, up from Sh5.8 billion previously.

Restructured loans

Equity Group increased its loan book provision eleven-fold to Sh14.3 billion up from Sh1.3 billion same period last year, while that of Standard Chartered rose to Sh2.7 billion up from Sh728 million previously.

Coop Bank chief executive said by the end of September, a total of Sh46 billion in loans, had been restructured.

“The restructuring was in appreciation of the challenges that businesses and households are grappling with from the disruption occasioned by the ongoing pandemic,” the bank’s Managing Director Gideon Muriuki said.

National Bank Managing Director Paul Russo says the dip in profits was only a temporary setback adding it will require concerted efforts from the industry as well as the resilience of Kenyan business community to turn the situation around.

Russo said increasing provisioning for bad loans resulted from banks exercising caution as banks cushioned for the uncertain times ahead.

When he released his bank’s results Absa Bank Managing Director, Jeremy Awori said the evolving impact of the pandemic has forced banks to re-visit their strategic priorities.

“Our focus in the last few months has been to help our customers manage through the pandemic through various interventions such as loan moratoriums and restructures, fee waivers for digital transaction, capacity building for SMEs and other initiatives,” he said.

In September, CBK reported banks restructured loans to a tune of Sh1.1 trillion, equivalent to 38 per cent of the sectors loan book, to help businesses cope with the effects of the pandemic.

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