High loan loss provision eats into banks' end year profits

Local banks had restructured loans worth Sh1.38 trillion by December last year, according to CBK

In Summary
  • Co-op Bank's Group  total loan loss provision during the period under review surged to Sh8.5 billion from Sh2.54 billion the previous year
  • KCB Group's loan provision surged to Sh27 billion, slowing net earnings by 22 per cent
Coop Bank Group managing director Gideon Muriuki at a past event.

The impact of coronavirus triggered loan restructuring is reflecting on banks' books, with Cooperative Bank Group being the latest casualty. 

The bank's financial results for the year ended December 31, 2020 shows it more than tripled its loan loss provision which saw its net profit drop 23 per cent to Sh10.9 billion compared to Sh14.3 billion in 2019.

The group's total loan loss provision during the period under review surged to Sh8.1 billion from Sh2.54 billion the previous year, a 220 per cent jump.

This shows the challenges that businesses and households are grappling with from the disruptions occasioned by the ongoing pandemic.

''We continue to actively engage our customers to support them through this period, by re-aligning the servicing of facilities, funding and transactional needs as the situation unfolds,'' Co-op Bank Group MD Gideon Muriuki said.

So far, the lender has restructured loans worth Sh49 billion, representing 17 per cent of it total loan book which grew by eight per cent during the year to Sh286.6 billion. 

This pushed operating expenses up  by 41.8 per cent from Sh27.8 Billion to Sh39.4 billion.

Despite a drop in net earning, Co-op Bank Group's total operating income grew by 11.1 per cent from Sh48.5 billion to Sh53.8 billion. Non-interest income grew by 1.9 per cent  from  Sh17.2 Billion to Sh17.5 Billion.

Net interest income  also grew by 16.1 per cent from Sh31.3 billion to Sh36.3 billion, largely on digital loans,  with the all-telco Mco-op Cash mobile wallet hitting five million customers  and loans worth Sh58.5 billion disbursed via the platform in 2020.

At least 92 per cent of the bank's transactions have been moved to  alternative delivery channels, an expanded 24-hour contact centre, mobile banking, 576 ATMs, internet banking and over 23,000 Co-op Kwa Jirani banking terminals.

besides high loan provision, the group's earnings were also dented by the absorption of currency translation losses in South Sudan operation. 

The subsidiary  made a profit before tax of Sh107.8 million which   translated to a monetary loss of  Sh1.65 billion attributable to hyperinflation accounting occasioned by currency devaluation of the South Sudanese pound.

Kingdom Bank which was acquired by Co-op Bank Group last year saw its losses massively drop to Sh200 million  from Sh1.06 billion  in 2019 on easing transition costs.  

Co-op Bank Group's total assets grew by Sh80 Billion or 18 per cent during the year under review compared to Sh457 billion in 2019. This places it as third largest bank in Kenya in terms of assets value, pending NCBA Bank's results. 

KCB Group which also reported a 22 per cent drop in net earnings on Wednesday is the top bank in Kenya in terms of assets. 

The bank inched closer to crossing the Sh1 trillion balance sheet mark, booking Sh987.8 billion in assets, a 10 per cent jump from the previous year, contributed by loan book growth, funded by increased customer deposits.

KCB Group's net earnings dropped to Sh19.6 billion from Sh25.2 billion a year earlier on high Covid-19 loan loss provision.

KCB Group MD told journalists on Thursday that the bank will continue to restructure necessary facilities despite the moratorium given Central Bank of Kenya (CBK) lapsing early this month. 

''Covid-19 is unpredictable. We have just entered a third wave. Although some businesses are back of feet, others are still struggling. It is our duty to continue supporting them,'' Oigara said during a virtual press briefing. 

Last week, Stanbic Holdings also  reported a 18.6 per cent drop in its full-year to December 2020 net profit on subdued interest income and higher loan provisions as Covid-19 pandemic hit the economy.

The Nairobi Securities Exchange-listed lender made Sh5.19 billion last year down from Sh6.38 billion recorded in 2019.