ANALYSIS

Banks profits grow as loan defaults decline

Most lenders attributes this to business recovery

In Summary
  • While some saw NPLs drop drastically, some like KCB and NCBA recorded highest default rates above the industry average of 13 per cent.  
  • Co-op Bank's net earnings rose 66% to Sh5.8 billion 
Coop Bank Group managing director Gideon Muriuki at a past event.
Image: COURTESY

Kenyan banks drastically cut their loan loss provisions in the first quarter of the year as borrowers started repaying loans on Covid-19 recovery, pushing up  net earnings. 

However, some reported the highest nonperforming loans in three years, pointing to businesses struggling to honour their credit obligations, due to the tough global economy.

Co-operative Bank Group is the latest to issue financial results for the period under review, with its net earnings soaring 66 per cent to Sh5.8 billion compared to Sh3.5 billion similar period last year. 

This was the highest profit growth among tier one banks in the country, attributed to quality asset book as businesses and households continue to recover from the impact of the Covid-19 pandemic.

The performance will see shareholders earn a competitive return on equity of 23.8 per cent. 

This is after shareholders’ funds grew to Sh102.7 billion, a 10 per cent increase from Sh93.7 billion in 2021 enabling us to continue pitching for big-ticket deals.

Total assets grew to Sh597.0 billion, an eight per cent growth from Sh552.9 billion in the same period last year.

Net loans and advances grew to Sh324.5 billion from Sh298.2 billion with investment in government securities also rising by 10 per cent to Sh183.4 billion. 

"Our gross NPL book was reduced by five per cent from last year to stand at 13.3 per cent from 15.2 per cent. This affirms our credit quality and growth strategies and will continue to improve to single-digit pre-pandemic levels,'' Co-op Bank MD Gideon Muriuki said. 

On Wednesday, KCB Group posted an after-tax profit of Sh9.9 billion having surged 54.6 per cent from Sh6.4 billion same period in 2021 boosted by growth in total income and reduction in loan loss provision. 

Revenues increased by 26 per cent to Sh29 billion on account of an increase in interest income, non-funded income from lending activities and service fees and a 21.1 per cent rise in earning assets.

Provisions decreased by 27.5 per cent from a similar period last year largely due to a drop in corporate and digital lending impairment charges after Covid-19 related provisions were recognised in the full year 2021.

Even so, the non-performing book continued to come under pressure due to slow recovery in the construction, hospitality and part of the manufacturing sectors causing deterioration from 14.8 per cent to 17 per cent.

Similarly, Absa Bank Kenya's profit for the first three months of the year rose to Sh3 billion, signalling a 22 per cent growth compared to the same period last year.

The lender's managing director Jeremy Awori attributed improved results to lower loan-loss provision and reduced impairment costs.

Total income grew by 12 per cent to Sh9.9 billion, primarily driven by higher net interest income which went up by 15 per cent year on year, as a result of increased lending.

For the period, total assets increased by 14 per cent to Sh438 billion with growth mainly driven by customer lending.

Customer deposits increased by five per cent to Sh270 billion.

Equity Bank Holdings was among first-tier banks to post growth in earnings for the quarter last week. Its net earnings rose by 36 per cent to Sh18.9 billion on the back of strong growth in both interest and non-interest income.

This was an improvement compared to the Sh8.72 billion reported in the same period last year. 

Strategic pursuit of quality growth saw non-performing loans decline to 8.6 per cent down from 11.3 per cent with cost of risk normalizing at 1.2 per cent and non-performing loan coverage rising to 95 per cent up from 87.4 per cent. 

NCBA Group which is currently ranked at the fourth position in the country in terms of asset value after Equity Bank, KCB and Co-operative Bank recorded a 20 per cent growth in earnings, also attributed to lower loan loss provision.

The lender's net earnings for the first three months of the year rose to Sh3.41 billion up from Sh2.84 billion last year. 

Even so, just like KCB, its non-performing loan ratio stands at 15.8 per cent, way above the industry level of 13 per cent. 

Its NPL coverage ratio, however, improved to 72.6 per cent from 65 per cent in the same period last year.