Standard Investment Bank (SIB) noted that I&M Bank's bad loans pushed down returns to the shareholders as expressed in the commercial bank’s return on average equity (ROaE)—which represents net profit as a proportion of shareholders’ funds as an average over the four quarters.
The bank’s gross NPLs soared 115 per cent year-on-year to Sh17.7 billion, nearly doubling its gross NPL ratio to 12.1 per cent from 6.7 per cent in the previous financial year.
Genghis Capital also highlighted the NPLs issue and warned against the limited price increase potential.
Listed lender I&M Bank #ticker:I&M will need to focus more on the quality of its loan book so as to meet the stricter international financial reporting standards (IFRS-9), Standard Investment Bank (SIB) analysts say.
SIB noted that bad loans pushed down returns to the shareholders as expressed in the commercial bank’s return on average equity (ROaE)—which represents net profit as a proportion of shareholders’ funds as an average over the four quarters.
The ROaE fell by 4.5 per cent to 16.7 per cent. The bank had to provide for the losses suffered as a result of the nonperforming loans, thereby depressing the profit.
A key provision of the IFRS-9, which came into force in January, is for banks to provide for possible loss in a loan in advance, meaning that this eats into profitability and capital.
“With a spike in provisions hitting its ROaE (4.5 per cent year-on-year drop to 16.7 per cent) a lot of emphasis will need to be placed on asset quality in an era of stricter IFRS-9 guidelines,” said SIB analysis of the bank’s 2017 results.
It is the only listed bank – apart from the National Bank of Kenya #ticker:NBK – which has experienced a fall of share price on the Nairobi Securities Exchange in the past three and six months.
I&M Bank share price has fallen nearly two per cent in the past three months and about four per cent in the past six months.
The bank’s gross NPLs soared 115 per cent year-on-year to Sh17.7 billion, nearly doubling its gross NPL ratio to 12.1 per cent from 6.7 per cent in the previous financial year.
Genghis Capital also highlighted the NPLs issue and warned against the limited price increase potential. Both Genghis and SIB gave a hold recommendation on the firm’s shares that is selling at an average of Sh125.
SIB noted that the upsurge in NPLs brought about a 39.8 per cent increase in provisions of Sh4.1 billion, denting the bottom line.
SIB was however optimistic that its position on dud loans would improve later this year.
“With manufacturing, trade and real estate sectors instituting the bulk of its lending book, we anticipate a possible retraction in NPLs from the second half of 2018 as the economic sectors pick up impetus from the slump in business activity witnessed from the second half of 2017,” said SIB.
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