What you need to know:
- KCB recorded a net profit of Sh7.57 billion compared to Sh12.72 billion in the same period last year.
- The lender attributed the dip to increased provisions in the wake of higher credit risk due to the Covid-19 pandemic.
Kenya's largest bank, the KCB Group, has reported a 40 per cent drop in net profit for the first half of the year, hit hard by the Covid-19 pandemic.
This is after the lender posted Sh7.6 billion in after-tax profits for the first six months of 2020, marking a 40 per cent decline from the Sh12.7 billion reported last year.
The lender attributed the dip to increased provisions in the wake of higher credit risk due to the Covid-19 pandemic.
KCB boss Joshua Oigara said the March to June period has been the most difficult quarter for nearly ten years at the bank, describing the provisions the lender has been forced to make as 'catastrophic'.
"This has been catastrophic. Never have we seen our provisions increase from an average of Sh3 billion to more than Sh11 billion," Oigara said.
Banks make provisions for bad debts when they realise that some of their customers may not be able to repay their loans as earlier planned.
"Because we have seen weaknesses in customers behaviour and customers repayment, we have seen a strong increase in our provisions," Oigara said. He said the cost of risk has risen by four times from 1 percent to 4 percent.
"The second quarter was the toughest in our recent history as the pandemic hurt economic activity across markets. Most of the key sectors were nearly shut down and our customers continue to face unprecedented challenges," Oigara said in a statement.
He said when the virus hit home in March, the bank made a commitment to look after its customers, staff and other stakeholders while pursuing business continuity.
"We intend to keep on this promise even under the current worsening operating environment," said Mr Oigara.
In response to the pandemic, KCB Group has instituted a raft of interventions to cushion and support key stakeholders such as customers and employees.
For the period under review, the Bank restructured facilities worth Sh101 billion to cushion customers against the effects of the crisis.
The debt-relief measures have seen customers apply for their loans to be restructured, credit lines expanded and loan tenures extended to keep them financially afloat. KCB has also waived fees associated with loan restructuring and those for mobile transactions below a thousand shillings.
But all was not lost.
The silver lining was in its operating income which grew by 17 per cent to Sh45 billion in the period compared to Sh38.6 billion in June 2019.
Net interest income was also up 22 per cent to Sh31.1 billion from Sh25.4 billion, riding on additional investments in Government securities and lending.
Non-funded income was up six per cent to Sh14 billion from Sh13.2 billion, driven largely by revenues from the digital proposition, growth in the forex income and additional income from National Bank of Kenya, the newest subsidiary of KCB Group.
The proportion of non-branch transactions rose to 98 per cent up from 95 per cent in the second quarter of 2019 mainly driven by mobile, Internet and agency banking.
Total operating expenses were up 20 per cent on the back of the National Bank of Kenya (NBK) acquisition.
"The synergies from the acquisition and the Group-wide cost management drive are expected to improve this position in the second half of the year," the bank said.
Total Assets grew by 28 per cent to Sh953.1 billion, funded by customer deposits and existing business growth.
Net loans and advances grew 17 per cent to close the period at Sh559.9 billion. On the funding side, customer deposits were up 35 per cent to Sh758.2 billion.
For the six months, the ratio of non-performing loans (NPLs) to total loan book increased to 13.7 per cent from 7.8 per cent in 2019, mainly due to consolidation of NBK and heightened defaults associated with the pandemic.
The stock of NPLs increased to Sh83.9 billion up from Sh39.1 billion in 2019.
On its part, shareholders' equity grew 12 per cent from Sh117.5 billion to Sh132.1 billion. This was driven by the growth in retained earnings over the 12-month period to June 2020.
"The Group maintained healthy buffers on its capital ratios over the minimum regulatory requirement," the lender said.
The Group's core capital as a proportion of total risk weighted assets closed the period at 17.9 per cent against the Central Bank of Kenya statutory minimum of 10.5 per cent. Total capital to risk-weighted assets stood at 19.5% against a regulatory minimum of 14.5 per cent.
All banking subsidiaries met regulatory capital requirement with the exception of NBK, which was below total capital requirement.
The group plans to inject additional capital before the end of this year to ensure compliance and support the turnaround strategies expected to drive performance.
"We project a continued strain on the business and economy in the remaining part of the year as the Covid-19 pandemic evolves.
"We will accelerate our support to customers, roll out cost management initiatives and seek avenues to boost efficiency through digitization to cushion the business from emerging pressures," said Mr Oigara.