Housing Finance profit drops 2.7pc on costly deposits

Mortgage firm Housing Finance has reported its first drop in earnings over the past four years after announcing a 2.7 per cent drop in net profit for nine months to September and warned margins would continue to be squeezed.

The company said its quarter three net profit stood at Sh390.6 million compared to Sh407.4 million a year earlier.

This is the first drop since 2008 when its half-year net profit dropped 5.5 per cent to Sh41 million.

The move reflects the volatility in the home loans market compared to retail and corporate lending which has delivered a 28.5 per cent rise in the banker’s profit.

The profit drop is linked to increased expenses on deposits that ate into the lender’s income from additional mortgage sales as new loans increased by Sh3.6 billion compared to Sh2.4 billion last year.

“This is a one-time bleep linked to high funding costs,” said Frank Ireri, managing director at HF, in an interview with the Business Daily on Monday.

“We project that fourth quarter profits will be also lower and this will affect the full year performance.” Income from loans rose by a third in the nine months to Sh3 billion, adding Sh1 billion which was less than the additional expenses on deposits of Sh1.26 billion.

Scarcity of funds saw deposit rates for high net worth investors rose to an average 18 per cent in mid this year compared to last year’s nine per cent, prompting to increase the lending to about 25 per cent from 18 per cent. But Mr Ireri says that HF did not increase its lending rates to match the expensive deposits, urging that the lender increased rates for exiting mortgage holders from 14 to 16.5 per cent.

“Defaults and the foreclosure process is a much riskier and expensive route which we opted to avoid and absorb the higher costs,” added Mr Ireri.
The bank recently borrowed Sh3 billion through a bond that attracted an interest of 13 per cent in a bid to cut its reliance on customer deposit for lending.

Mr Ireri reckons that the HF is unlikely to surpass last year’s growth of 64 per cent to Sh622 million on poor performances in the second half.

But analysts reckon that HF’s slower performance is unlikely to hurt its dividend payout given it lifted the pay 40 per cent in the six months to June despite a slower growth of 3.5 per cent in the first half.

HF’s half-year net profit stood at Sh250.3 million compared to last year’s Sh241.8 million and increased dividends to Sh0.70 a share from Sh0.50.

Its full-year payout stood at Sh1.20 a share.

The dividend pay calmed investors’ nerves who have seen HF shares gain 1.56 per cent to Sh16.25 in the past year.

The principal shareholders in the home loans firm are Equity Bank (24.85 per cent), British America Investment Company that owns 20.88 per cent of the Mortgage Company and National Social Security Fund with a 8.14 per cent ownership.