KCB Group #ticker:KCB reported an 8.4 percent growth in net earnings in the first quarter ended March, helped by higher interest income and fees on transactions.
The lender’s net profit in the period stood at Sh6.2 billion, up from Sh5.7 billion the year before.
The earnings included the performance of the newly-acquired subsidiary, National Bank of Kenya (NBK), whose net profit more than doubled to Sh154.9 million from Sh66.2 million over the same period.
KCB chief executive Joshua Oigara said the results were below expectations, attributing the assessment to a tougher economic environment.
“The operating landscape has further been exacerbated by Covid-19 immediately shifting our focus to supporting our customers through the crisis, pursuing business continuity and the safety and well-being of our staff and all other stakeholders,” Mr Oigara said.
“We expect performance in the next two quarters to be impacted as the crisis is affecting the ability of customers to service their loans and reducing the demand for credit.”
First quarter bank earnings in general will be largely free from the impact of increased defaults and reduced lending from the spread of the coronavirus.
Kenya confirmed its first case of coronavirus on March 12 — at the tail end of the quarter. The Central Bank of Kenya (CBK) also said it would be flexible in terms of classification and provisioning for loans that were performing as of March 2.
KCB benefited from a 20.4 percent rise in interest income to Sh20.2 billion and a 30.5 percent surge in transaction-based revenue to Sh7.8 billion.
Its loan book expanded 19.2 percent to Sh553.8 billion while investments in government debt also increased 52.6 percent to Sh188 billion.
KCB’s stock of non-performing loans rose 70.5 percent to Sh66.2 billion, resulting in provisions for the bad debt jumping nearly 2.5 times to Sh2.8 billion.
The country’s biggest bank said the spike in defaults was due to the consolidation of NBK, which “brought on board Sh25 billion in non-performing loans (NPL)”.
“The NPL portfolio is concentrated in trade, personal and real estate segments. The group increased the NPL coverage to 65.3 percent from 60.8 percent in 2019,” said KCB.
The lender’s customer deposits increased 34 percent to Sh740.4 billion, partly contributing to interest expenses rising 26.6 percent to Sh5.1 billion.
Operating expenses surged 36.7 percent to Sh14 billion on what the lender attributed to the buyout of NBK and salary increments in the first quarter.
Mr Oigara said the bank would be more conservative in the short term in light of the pandemic.
“We have taken measures to conserve our capital, manage costs and keep a keen eye on liquidity,” he said.