Companies

Ecobank suffers record Sh1bn loss on costly deposits

ecobank

Ecobank's costly deposits saw it suffer a net loss of Sh1 billion in 2012. Photo/FILE

Ecobank has posted one of the biggest losses in Kenya’s banking industry over the past five years as costly deposits saw it suffer a net loss of Sh1 billion last year.

The bank had made a net profit of Sh202.1 million in 2011, with last year’s loss driven by interest expenses that nearly doubled to Sh2.5 billion from Sh1.3 billion.

Ecobank joins troubled Dubai Bank in defying the industry trends that has seen increased lending lift the sectors profits 20 per cent to Sh107 billion.

READ: Bank profits surge to record Sh108bn on expensive loans

The lender’s interest expenses wiped out the bank’s interest income that increased 27.1 per cent to Sh2.5 billion as the loan book expanded 22.7 per cent to Sh13.9 billion.

The bank’s income from fees and commissions dropped to Sh835.5 million from Sh1.2 billion, failing to provide cushion from the high interest expenses.

Banks paid up to 30 per cent interest on large deposits last year when tight liquidity forced lenders to raise rates to retain and attract new funds.

Lenders with a smaller retail customer base have been hit the hardest, as most corporate depositors demand interest higher than that paid by  prevailing government securities.

“The bank has put in place a strategy focused at improving its deposits mix in order to manage the cost of funds and improve its profitability,” Ecobank said in a statement.

“Quarter one results show that the bank is now back to profitability.”

Ecobank said its parent firm shall inject another Sh2.1 billion by June to help its local subsidiary grow its business by opening more branches and boosting its lending capacity.

The fresh capital injection follows last year’s disbursement of a similar amount by Ecobank Transnational Incorporated to its Kenyan unit.

READ: Ecobank to get Sh2bn injection from parent firm

Ecobank, like new entrant United Bank for Africa (UBA) is seeking to grow its retail customer base to grow its loan book and benefit from cheap deposits from small businesses and individual customers.

The Pan African bank entered the Kenyan market in mid-2008 when it acquired the East African Building Society (EABS) that was in losses. Ecobank then invested hundreds of millions of shillings clearing EABS bad debts and opened more branches that has seen its footprint stand at the current 25 branches.

In 2009, the bank allocated Sh757.7 million for bad debts which have since dropped to Sh646.1 million, implying improved credit quality.

Ecobank made its first profit post acquisition in 2010 when its net profit stood at Sh125.1 million, reversing the Sh796 million net loss the year before.

The Kenyan subsidiary did not contribute positively to its Togo-based parent firm whose pre-tax profit increased 25 per cent to Sh29.5 billion last year from Sh23.5 billion in 2011.