NIC Group’s #ticker:NIC profit for the first quarter ended March dropped 4.3 percent to Sh931.2 million on the back of higher costs.
Operating expenses rose 16.8 percent to Sh2.4 billion, outpacing the growth of interest and transaction-based income.
Total interest income grew 1.3 per cent to Sh4.7 billion while non-interest income rose 7.2 per cent to Sh1.1 billion.
All the items comprising the basket of operating expenses grew, leading to the profit decline.
Loan loss provision increased 21 per cent to Sh673.1 million as gross non-performing loans and advances to customers rose 3.2 per cent to Sh16.3 billion.
Staff costs also rose 11.5 per cent to Sh895.7 million while directors’ emoluments increased 55 per cent to Sh67 million.
The rise in loan loss provisioning reverses the trend that was seen in the banking sector last year where many lenders passed most of their bad loans through balance sheet reserves as opposed to income statement.
Genghis Capital, an investment bank, has projected that provisions will rise by an average 52.9 percent year-on-year in 2019 in the absence of this one–off benefit.
NIC’s drop in profitability comes as its plans to merge with CBA Group takes shape. CBA is yet to release its first quarter results but its net profit for last year dropped 9.7 percent to Sh5 billion.
The two institutions announced on Wednesday that NIC’s chief executive John Gachora will run the merged entity.
CBA’s chief executive Isaac Awuondo will chair and manage the Kenyan banking operations that will emerge from the tie-up, giving him direct responsibility for the most important subsidiary.
The two firms said in a joint statement the combined entity’s board of directors and executive management team will be well balanced between the two institutions.
The Competition Authority of Kenya has already approved the proposed merger but ordered the two entities to retain all the 1,872 employees in Kenya for at least 12 months after the merger.
CBA and NIC will continue to publish their results separately until the merger is completed.