HF Group posts 26pc net profit increase in first half of the year

Mortgage financier HF Group posted a 26.2 per cent growth in net profit in the half year ended June on increased lending and property sales.

The Nairobi Securities Exchange-listed firm said its net profit in the period stood at Sh612.5 million compared to Sh485.1 million a year earlier.
HF did not declare an interim dividend for the period, indicating a move to conserve cash. The company paid an interim dividend Sh0.65 per share for the same period the year before.

The performance came as interest income increased 21.5 per cent to Sh4.4 billion, partly reflecting a 6.9 per cent loan book expansion to Sh53.4 billion.
HF also raised its investment in government bonds and T-Bills to Sh3.7 billion from Sh515.5 million.

Bad loans

“The group also increased its holding of government securities … to take advantage of the improved yields on government paper as well as building a sinking fund towards liquidation of the first tranche of its corporate bond expected in October 2017,” HF said in a statement.

HF is set to redeem Sh7 billion worth of its seven-year bond it issued in 2010.

The firm’s ‘other income’, expected to capture property sales, rose 35.8 per cent to Sh416.9 million.

HF’s operating expenses increased 18.5 per cent to Sh1.6 billion as interest expenses rose 21.3 per cent to Sh2.4 billion.
Customer deposits expanded 6.1 per cent to Sh39.7 billion, partly causing the jump in interest paid to savers.

The company’s loan loss provisions increased by Sh21.6 million to Sh304.9 million as the gross bad loans rose by Sh1.2 billion to Sh5.3 billion.

The company said the growth of the bad debts was brought by delays in disposing of some assets, adding that the loans are expected to be settled later this year.

This is expected to reduce the level of the gross non-performing loans to total loan book from the current 10 per cent to seven per cent, HF said.
A slowdown in the real estate sector, where HF is one of the biggest players, was cited as one of the biggest drivers of rising bad debts among Kenyan banks in the first quarter of the year.

READ: HF profit up 48pc in first quarter

READ: Real estate slowdown leaves banks with rising pile of bad loans

The report by the Central Bank of Kenya shows that gross non-performing loans (NPLs) in the industry rose 15.8 per cent to Sh170.6 billion in March compared to Sh147.3 billion in December.

“Real estate sector recorded the highest increase in NPLs over the quarter by Sh5.9 billion or 42.3 per cent. This is attributable to slow uptake of housing units,” reads part of the report.

The 42.3 per cent rise in the property market’s NPLs to Sh19.7 billion indicates that developers have satisfied a large part of the pent-up demand for commercial units and residential buildings.

The real estate boom that has been underway for over a decade has attracted major investments, with Nairobi alone approving more than 250 buildings plans valued in excess of Sh18 billion each month.

A slowdown in the property market could hurt lenders with a huge exposure in the industry. HF Group, one of the biggest financiers of the real estate sector, says it derives most of its earnings from that industry through provision of mortgages and project finance.