StanChart issues profit warning as rate caps bite

Standard Chartered Bank Kenya CEO Lamin Manjang. PHOTO | SALATON NJAU | NMG
Standard Chartered Bank Kenya CEO Lamin Manjang. PHOTO | SALATON NJAU | NMG 

Standard Chartered Bank Kenya #ticker:SCBK has issued a profit warning for the full year ending December 2017, citing the effects a cap on interest rates imposed a year ago and unpaid loans in a sluggish economy.

“SCBKL projects that net earnings for the year ending December will be potentially 25 per cent lower than that reported for the year that ended December 2016, primarily due to two factors,” StanChart chief executive Lamin Manjang said in a statement as he blamed bad debts and a legal cap on loan rates.

This means that the lender expects a maximum net profit of Sh6.75 billion this year compared to Sh9 billion it posted last year in the same period.

The tier I lender has also cut dividend payout for the period to Sh4.50 from Sh6 it paid in the same period last year.

Q3 earnings

The bank’s net profit in the nine months ended September dropped 38 per cent to Sh4.7 billion — making it the biggest drop in earnings among top lenders that have announced their quarter three results.

Mr Manjang says the caps have locked out some borrowers, such as small and medium enterprises (SMEs), from the credit market leading lending growth to grind to a near halt.

The government capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which stands at 10 per cent, and put a minimum deposit interest rate of 70 per cent of the benchmark.

This saw Standard Chartered's earnings from loans drop to Sh10 billion, down from the Sh11.4 billion it posted in a similar period a year earlier.

Its loans book dropped from Sh122.7 billion in December to Sh114.2 billion in September.

Slow economy

Kenya’s economy has taken a hit from drought and political turmoil for the better part of the year, the latter stemming from a prolonged election cycle that resulted in a repeat presidential vote whose results have been challenged in court yet again.

According to StanChart, these factors have slowed down loan repayments.

“SCBKL Non-Performing loans has increased during the year,” said Mr Manjang, adding that a solution to the unpaid loans is unlikely to be achieved this year.

The bank reduced its profits by Sh3.7 billion in the nine months compared to Sh1.8 billion in similar period last year to cover risks associated with the unpaid loans that stood at Sh16.9 billion.