Family Bank has issued a profit warning for the year ending next month after slipping into the red in the first nine months.
The lender blamed the performance and the outlook on the interest rate cap enacted last year and a prolonged electioneering period.
“Earnings for the current financial year ending December 31 are forecast to be lower than 25 per cent of the earnings for the same period in 2016,” the bank said in a notice to investors.
The company reported a net loss of Sh743 million in the nine months ended September, reversing a net profit of Sh963.3 million the year before.
Reduced lending, rising defaults and narrower margins brought by the interest rate cap were the main causes of the loss in the review period.
Family Bank’s interest income fell 43.3 per cent to Sh4.9 billion as its loan book shrunk 20.3 per cent to Sh44.3 billion, with the bank earning less interest on the smaller loan pool on the back of the capped interest rates.
The lender also registered defaults on interest and principal, with its stock of gross bad debt rising 26.7 per cent to Sh8.2 billion.
Provisions for the soured loans dropped marginally to Sh569.5 million from Sh573.1 million.
Its customer deposits declined 10 per cent to Sh48.1 billion, a move that contributed to interest expenses dropping 38.4 per cent to Sh2 billion.
Operating expenses also shrunk 5.6 per cent to Sh5.5 billion, reflecting a cut in staff and directors’ wages. Non-interest income was flat at Sh1.8 billion.
The bank cut its workforce by 250 last year in an exercise that cost it Sh380 million, with the savings showing in the nine-month period.
Staff costs dropped by nearly a fifth –or Sh400 million— to Sh1.6 billion in the period ended September.
“We have … made excellent progress with our transformation programme which is geared towards greater efficiency, productivity and growth in our revenue lines,” the bank said in a statement.