HF Group net profit for the first three months of the year rose 2.4 times to Sh83.3 million helped by increased interest and non-interest income.
The company’s growing profitability has seen its top shareholder –Britam Holdings— suspend plans to sell its 48.2 percent stake in the mortgage financier.
Britam’s chief executive Tom Gitogo recently told Business Daily that the insurer was reviewing its “position in light of HF’s bright future.”
HF’s net interest income rose from Sh520.1 million to Sh629.3 million in the period the loan book expanded by 1.8 percent to Sh36.97 billion.
Non-interest income rose from Sh252 million to Sh274.7 million, adding to the lender’s operating income which rose by 17 percent to Sh904.1 million.
Operating expenses however rose from Sh733 million to Sh814 million mainly on the lender raising provisioning for loan defaults by 80.4 percent to Sh101.74 million.
HF gross non-performing loans (NPLs) hit Sh8.78 billion in March from Sh8.48 billion in December, leaving its NPLs ratio at above 20 percent.
The group recently disclosed that it is targeting to recover Sh10 billion NPLs and raise fresh capital to meet the minimum level required to comply with the Central Bank of Kenya (CBK).
The lender discloses in the latest annual report that it wants to step up the recovery of the legacy NPLs over a five-year period through auctions and private treaties as it continues to resolve challenges such as litigations that have been standing in the way.
HF, which closed March in breach of three capital strength ratios, says the NPL recovery will reduce the statutory credit risk reserve resulting in a transfer to retained earnings and improving the core tier I and total capital.
The lender wants to supplement loan recoveries with fresh raising of both tier I and tier II capital and has already identified a transaction advisor to lead in the search.
“The group has appointed a transaction advisor to scout for potential investors for both tier I and tier II capital,” said HF in the annual report published last week.
The lender’s core capital to total risk-weighted assets and total capital to total risk-weighted assets closed at 3.3 percentage points and 3.5 percentage points respectively below the required CBK minimum.
The core capital to total deposits ratio was at 6.7 percent, being 1.3 percentage points below the required minimum.
HF says it has already engaged the CBK on the current regulatory breaches and shared a time-bound action plan on how and when each breach will be cured.
The lender has also received a commitment from the top shareholder Britam Holdings that it will continue offering support this year. Britam in 2021 lent HF Sh1 billion, repayable in 2028.