More commercial banks are now projecting a substantial fall in their full-year net profits for 2020 on account of Covid-induced economic disruptions that have weakened borrowers’ ability to repay loans.
Lenders say that they have had to significantly raise loan loss provisioning to reflect the economic fallout facing individuals and firms.
Co-operative Bank of Kenya #ticker:CO-OP has become the latest to inform its investors that it expects a material fall in full year earnings despite revenue from the mainstay business of lending registering a growth.
“Loan loss provisions have been much higher than in the previous year in appreciation of the challenges that businesses and households continue to grapple with in meeting their obligations to the bank,” said the lender.
Banking sector’s ratio of non-performing loans has risen from March’s 12.5 percent to 13.6 percent in October— the highest since August 2007 when it stood at 14.41 percent.
Profit fall will mark a rare cycle for Kenya’s banking sector which has been enjoying growth in earnings despite previous disruptions such as interest rate cap in 2016.
Other lenders that have announced expected decline in earnings include Standard Chartered #ticker:SCBK, Absa #ticker:ABSA, Diamond Trust #ticker:DTB, I&M Holdings #ticker:I&M, and NCBA #ticker:NCBA.
Banks have up to the end of March to release their results that were generated in a business environment that was disrupted since Kenya recording its first Covid-19 case on March 13 last year.
Top banks —KCB #ticker:KCB, Equity #ticker:EQTY, Co-operative, Absa, Stanbic #ticker:SBIC, DTB and StanChart – saw a combined 30.2 percent or 22.56 billion decline in profitability in the nine months to September 2020.
KCB contributed 36.7 percent of the fall followed by Absa Kenya (16.12 percent), Equity (10.8 percent) and NCBA with 9.25 percent of the Sh22.56 billion fall. Co-op Bank had the least contribution (4.92 percent) in the drop.
In terms of falls in net profit, Absa took the heaviest hit (65.4 percent), followed by NCBA (45.3 percent), KCB (43.2 percent), Stanchart (30.41 percent) and Stanbic with 30.1 percent dip.
Central Bank of Kenya (CBK) has had to issue a circular asking all banks to revise their capital levels to reflect the prevailing economic hardships before making any dividend payment decision.
“The duration and extent of the pandemic remains uncertain and it is critical that these institutions remain resilient by strengthening their balance sheets through additional capital and adequate liquidity,” said CBK in mid-August.