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Absa spends Sh1 billion on litigation

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Absa Bank Kenya Chairman Charles Muchene (Centre) Interim Chief Executive Officer Yusuf Omari (right) and Interim Chief Financial officer Moses Muthui (left) during the Bank's 2022 full-year financial results investor briefing at Villa Rosa Kempinski Nairobi on Wednesday, March 15, 2023. PHOTO | DENNIS ONSONGO | NMG

Absa Bank Kenya Plc has disclosed spending Sh1 billion on court settlements in the financial year that ended on December 31, 2022.

The lender said on Wednesday that the expense was a one-off (non-recurring) based on litigation matters that the bank provides for.

The bank did not however immediately disclose the specific cases tied to the litigation expense.

“This is a one-off based on a non-recurring expense from litigation matters that we are providing for,” said Absa’s interim chief finance officer Moses Muthui.

The bank’s interim chief executive Yusuf Omari said the lender normally makes provision on its own independent assessment of the likelihood of claims crystallising.

The one-off litigation expense served to push up the bank’s overall operating expenses by 12 percent to Sh18.7 billion from Sh16.7 billion previously.

Investment-related costs were additionally responsible for the growth in costs over the period.

Moreover, Absa raised its cover for bad loans by 38.3 percent to Sh6.5 billion after one-off releases booked a year earlier.

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According to details contained in its annual reports, Absa Bank Kenya usually provisions for expenses related to legal action taken against it to cushion against adverse decisions.

In 2021, Absa included provisions for litigation among other payables including exercise duties payable, interchange payable and uncleared payments and trade payables and valued the combined payables at Sh8.3 billion.

Absa says management relies on the advice of its Group’s legal counsel for an assessment of matters of significant nature including potential litigation and claims.

The lender says litigation risks arise when there is no agreement on the differing interpretation of existing fallback terms.

Additionally, the bank assesses a litigation risk when there is a risk of litigation and prolonged disputes with counterparties which could give rise to additional legal and other costs.

“The Group is working proactively with all counterparties to minimize this risk from occurring,” read’s part of the lender’s 2021 annual report.

Earlier this week, Absa Kenya reported a record dividend to shareholders at Sh7.3 billion for the year ended December 2022.

The record shareholder pay was anchored on a 34.2 percent expansion in net profit for the period to Sh14.6 billion from Sh10.9 billion previously.

Read: Absa to pay couple Sh234m for fraudulent shares sale

The growth in the bank’s profitability was primarily due to increased lending with net interest income growing ahead of non-funded income at 27.7 percent.

Absa has credited the growth in net interest income to increased lending to small and medium enterprises against what the lender terms as a tough operating environment.

Its loan book in the year was up by 21.1 percent at Sh283.6 billion from Sh234.2 billion previously.

The bank’s deposit base was likewise higher, expanding by 13.1 percent to Sh303.8 billion from Sh268.7 billion.

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