Banks’ ten-month profit falls Sh41bn on Covid shocks

Commercial banks’ pre-tax profit fell Sh41.8 billion in the first 10 months of the year largely on the back of increased provisions in the face of rising loan defaults emanating from coronavirus-induced economic hardships.

Fresh Central Bank of Kenya (CBK) data shows the lenders made Sh98.9 billion profit before taxation in the January-October period, a 29.71 percent drop compared with Sh140.7 billion in a similar period in 2019.

The drop in profitability thins the chances of dividend payouts for shareholders next year.

Banks varied repayment terms for loans amounting to Sh1.38 trillion between March and October, according to the CBK, in a bid to alleviate financial stress for companies and homes in an economy battered by Covid-19 knocks.

The slip in profitability in the 39-bank industry to the lowest levels in at least five years came at a time gross non-performing loans climbed Sh54.6 billion or 15.7 percent in period to Sh402.3 billion.

This translated to a default rate of about 13.55 percent of the Sh2.97 trillion gross loans as at end of October.

“We expect nonperforming loans to continue to rise from their already high level, nearing 14 percent by the end of 2020, from 12 percent at the end of 2019,” analysts at global credit rating agency Moody’s wrote in a report on Kenya’s banking system in September.

“Kenyan banks' profitability faces headwinds from rising loan-loss provisioning costs this year. Revenue will also fall because lending volumes and other business transactions will drop due to the economic slowdown.”