Real People issues profit warning, blames volatile interest rates
Real People CEO Daniel Ohonde. PHOTO | FILE | NATION MEDIA GROUP
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The company says the more than 25 per cent drop in profit was also caused by the adoption of new impairment standards at the end of the financial year.
Microfinancier Real People has issued a profit warning for the financial year ended March 31 following low uptake of its loan products after a surge of interest rates.
The company in a regulatory filing says interest rate volatility in the second half of last year eroded its anticipated earnings.
“Lower than anticipated loan advances growth during the second half of the financial year mainly as a result of volatile interest rate environment significantly affected the target customer segment,” the notice reads.
Last year, a sharp rise in the price of government paper caused a spike in bank loan costs with average rates rising well above 20 per cent.
Microfinanciers have higher default ratios compared to banks due to the risks they take, which is why they compensate by pricing their loans higher than banks.
The company says the more than 25 per cent drop was also caused by the adoption of new impairment standards at the end of the financial year.
“The new impairment estimations incorporates international best practices for application to the relevant asset classes,” the notice by its directors reads.
The announcement comes months after the credit-only financial institution listed a bond on the Nairobi Securities Exchange at a high rate.
The bond issued late last year brought in a total of Sh1.63 billion against Sh2.5 billion target for the first tranche of the Sh5 billion offering.
The proceeds were meant to be used for on-lending with Real People targeting to double its loan book in the next 12 months.
Depressed earnings
Slower loan growth will hit the company’s projection as it has not diversified its products.
The South African micro-lender which planned to offer the next tranche of the bond earlier this year is yet to float it, an indicator that it might be slowing down on financing its growth following the poor run in the past year.
The performance comes on the back of depressed earnings in the year to March 31 where the company recorded a 26.7 per cent drop in profit to Sh146.5 million, attributed to lower gains from foreign exchange and increased provisions for bad loans.
