KCB Group net earnings drop 40% in the first half of 2020

KENYA – Kenya Commercial Bank (KCB Group) has announced that its net earnings has dropped by a staggering 40.4 percent in the half year ended June, indicating the impact of coronavirus-related defaults and loan restructuring on the banking industry.

The country’s biggest bank by assets said it made a net profit of KSh7.5 billion (US$69.24m) in the review period compared to KSh12.7 billion (US$117.24m) the year before, attributing the performance to increased provisioning for bad debt.

KCB did not declare an interim dividend, which has previously stood at KSh1 per share, with the move saving it KSh3.2 billion (US$29.5m).

The lender raised its provision for potential loan losses 3.6 times to KSh11 billion (US$101.6m) from KSh3 billion (US$27.7m), eating into its bottom-line.

This was in response to the gross non-performing loans more than doubling to KSh83.8 billion (US$773.6m) from KSh39.1 billion (US$360.96m).

The ramp-up in provisioning overshadowed robust earnings from the mainstay lending business, which saw net interest income jump 22 per cent to KSh31 billion (US$286.19m).

“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,” KCB’s chief executive, Joshua Oigara, said in a statement.

Industries and other businesses have since cut down on their activities in response to the infectious disease, leading to job cuts and unpaid leave for retained staff as profitable firms move into losses.

This has seen workers who had tapped mortgages and unsecured loans for purchase of goods such as furniture, cars and expenses like school fees default. Unsecured loans are given on the strength of one’s salary.

Firms that had borrowed based on the forecast of cash flows have also been struggling to repay their bank loans.

If KCB’s performance proves to be a bellwether for the banking industry’s earnings, investors are staring at record profit warnings and more dividend cuts this year.

KCB said it restructured loans worth KSh101 billion (US$0.93bn) in the six-month period to give financial relief to customers whose earnings have dropped due to the Covid-19 pandemic.

“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 KSh1,000 (US$9.23),” the lender said.

KCB said all its subsidiaries are adequately capitalised with the exception of National Bank of Kenya (NBK), which it will bring to compliance by December through injection of additional capital.

“We project a continued strain on the business and economy in the remaining part of the year as the Covid-19 pandemic evolves,” Mr Oigara said.

“We will accelerate our support to customers, roll out cost management initiatives and seek avenues to boost efficiency though digitisation to cushion the business from emerging pressures.”

Bank earnings would have been worse in the absence of a more lenient regulatory stance taken by the Central Bank of Kenya (CBK) to help the lenders navigate the pandemic.

To soften the blow on the lenders, the CBK said it will be more flexible with regard to requirements for loan classification and provisioning for loans that were performing on March 2 and whose repayment period was extended or were restructured due to the pandemic.

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