Jamii Bora Bank profit falls 79pc on expansion, higher taxes

Jamii Bora Bank, which lends mostly to small and medium enterprises, has recorded a 79.5 per cent drop in after-tax profits following increased expenses associated with branch expansion and higher tax charge.

The bank reported a Sh19 million net profit compared to Sh93 million posted in 2013.

“We have increased our branch network to 24 branches and they take time to break even,” said Samuel Kimani, chief executive of the bank.

The lenders operating expenses grew at a faster pace of 70 per cent than its income expansion of 60 per cent resulting in marginal growth in profits before tax of Sh6 million.

Profits after tax, however, took a hit from exhaustion of a four-year grace period set to recover losses made in 2010. This resulted in the lender paying taxes of Sh76 million compared to a tax credit of Sh3 million last year.

“We have decided to be prudent and book the tax because we have not seen other companies getting extensions,” said Mr Kimani.

The bank is open to applying for an extension from the taxman to recover the losses.

This is the third year in a row that the bank is recording profit. Between 2005 and 2011, the bank was recording losses. The turnaround followed entry of new investors Asterisk in 2011.

READ: Jamii Bora Bank triples profit after three-fold income growth

Jamii Bora mobilised deposits of Sh8.4 billion up from Sh3.4 billion while its loan book expanded to Sh6.1 billion from Sh3.8 billion.

Jamii Bora has been raising capital to support its growth with Sh820 million of new capital booked in the last month of last year. The lenders paid up capital increased to Sh1.7 billion from Sh1.2 billion.

Private equity firm Catalyst Principal Partners bought a stake into the bank last year for an undisclosed amount.

READ: Private equity firm Catalyst buys stake in Jamii Bora

There has been increased attention in lending to small and micro businesses which is the target market for Jamii Bora. Some lenders have opted to open subsidiaries targeting the SME segment in order to tap into the market without changing their brand radically.

Chase Bank operates Rafiki Microfinance Bank which has also been on an expansion mode. The microfinance bank opened six branches last year to push it outlets to 19. The expansion saw its deposit base double to Sh2.8 billion as its customer numbers rose to 106,689 from 61,162.

Rafiki recorded a Sh21 million profit up from Sh9 million driven by the increased business.

It advanced Sh3.4 billion to its customers up from Sh1.8 billion in 2013. Its interest income from loans doubled to Sh605 million while its interest expenses nearly tripled to Sh133 million from Sh49 million a year earlier.

Lending to SMEs is more rewarding to banks given their insensitivity to price since they lay greater emphasis on turnaround time and accessibility.

Rafiki also took in additional cash with its share capital doubling to Sh1 billion.