Absa bank net profit drops by 85% in the first half of 2020 due to the corona virus pandemic

KENYAAbsa Bank Kenya, a commercial bank, has announced that its net profit dropped by a record 85 percent in the half year ended June to KSh588.9 million (US$5.44m) as the lender’s raised provisions for coronavirus-related defaults.

The Nairobi Securities Exchange-listed firm’s net earnings stood at KSh3.8 billion (US$35.13m) a year earlier. Absa did not declare an interim dividend, saving KSh1 billion (US$9.24m) based on its previously unbroken tradition of paying KSh0.2 per share.

KCB Group and Standard Chartered Bank Kenya also skipped interim dividends as banks focus on preserving capital.

Absa’s profit drop is now the highest among the big banks, beating KCB’s 40.4 percent slump to KSh7.5 billion (US$69.33m) in the review period.

Absa’s performance was largely the result of loan loss provisions rising 3.2 times to KSh5.3 billion (US$49m) despite the stock of bad loans increasing at a slower rate of 8.3 percent to KSh17 billion (US$0.16bn).

The bank’s chief financial officer Yusuf Omari told Business Daily that out of the provisions, KSh3 billion (US$27.73m) represents the general weak economic outlook due to the Covid-19 pandemic.

“We are making provisions even for loans that are still performing. The amount could reverse if the pandemic is contained and economic activities pick up,” Mr Omari said. He added that other provisions were caused by defaults among a few large corporate customers.

Absa has so far restructured loans worth KSh57 billion (US$0.53bn), representing 28 percent of its loan book. The lender’s earnings were also dragged down by costs of rebranding from its former parent company Barclays Plc.

The costs, including technology change and marketing expenses, nearly tripled to KSh1.6 billion (US$14.79m) from KSh560 million (US$5.18m).

Absa’s interest income rose by a marginal 0.8 percent to KSh15.3 billion (US$141.44m) despite significant expansion of the loan book and investment in government debt securities.

Loans and advances jumped 8.1 percent to KSh201.9 billion (US$1.87bn) while holdings of State bonds and T-bills increased 13.3 percent to KSh92 billion (US$0.85bn).

“Interest income was held down because we lowered the rate on customer loans in response to the fall in the Central Bank Rate,” Mr Omari said.

The signalling rate has averaged 7.25 percent in the review period compared to nine percent the year before, partly contributing to average commercial bank lending rates falling to new a low of 11.8 percent in June.

“Our focus in the last few months has been to help our customers manage through the pandemic through various interventions such as loan moratoriums and restructures, fee waivers for digital transaction, capacity building for SMEs and other Force for Good initiatives,” Absa Bank Kenya Managing Director Jeremy Awori said.

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