KCB First-Half Profit Rises as Kenyan Lender Cuts ProvisionsBy
Reaps rewards from push into Islamic banking, insurance
Kenya’s biggest lender by assets delays rights issue
KCB Group Ltd., Kenya’s biggest bank by assets, boosted first-half profit by 14 percent as earnings from lending increased and after setting aside less money for credit-related losses.
Net income in the six months through June rose to 10.5 billion shillings ($103.6 million) compared with 9.2 billion shillings a year earlier, the Nairobi-based lender said in a statement on Thursday. Net interest income, the revenue generated from the difference between what banks charge for loans and pay for funding, jumped 16 percent to 22.5 billion shillings.
KCB kept cost increases below inflation while lowering provisions for soured loans 20 percent as it put in place measures to reverse a 36 percent surge in non-performing loans over the period, Chief Executive Officer Joshua Oigara told reporters. The company’s operations in Tanzania, South Sudan, Uganda, Rwanda and Ethiopia also helped lift earnings, while an expansion into investment banking, insurance and Islamic banking started reaping rewards, he said.
“We are seeing a consistently growing business that is anchored on improved efficiency, diversified sources of income and a strong loan book growth,” Oigara said. “Looking ahead, focus is on enhancing growth momentum in the key markets across the region during the second half of the year. The Kenya business continues to show strong momentum and so are new business lines like Bancassurance, KCB Capital and Sahl Banking.”
The lender will boost its Tier 2 capital by using $75 million of $200 million it has available from commitments it received through a “capital-raising exercise,” the CEO said. It will then embark on a loan program over the next four years to strengthen operations in the seven countries in which it operates, with Rwanda and Kenya seen as the most promising, he said.
The stock swung between gains and losses to trade 0.8 percent higher at 31.75 shillings as of 2:40 p.m. in Nairobi, giving KCB a market value of 97 billion shillings. The shares have declined 27 percent this year, compared with a 3.6 percent drop in the FTSE NSE Kenya 25 Index.
The lender’s NPL ratio worsened to 8.9 percent of the bank’s book, from 6.6 percent previously. The industry’s average non-performing loans ratio deteriorated to 6.8 percent by the end of 2015, from 5.6 percent a year earlier, partly due to delays in payments to suppliers and contractors, according to a banking supervision report by the regulator.
“We’re very confident about delivering 15 percent year-on-year returns for this year, which is well within our target, and addressing our non-performing loans,” Oigara said.
Bad loans were driven by three key accounts; two in construction and a government body, Chief Financial Officer Lawrence Kimathi said at a presentation. All three loans were fully backed by good-quality collateral and their recovery is in progress, he said.
The three large non-performing clients accounted for 19 billion shillings of the the group’s corporate loan book of 150 billion shillings which increased the lender’s overall non-performing loan book by 5200 basis points, Oigara said in an interview.
“If you look at our retail business, our non-performing loan ratio is 2 percent, our corporate book non-performing loan ratio is 12 percent, that should be the best performing book.” Oigara said. “We’ve got one large client of ours who is 90 days in arrears and we have provided for him 20 percent, in line with prudential guidelines. Two of them we expect to recover in current quarter, and one of them in the last quarter of the year so by December we believe we should be at a 6.5 NPL ratio.” he said.
Plans for a rights offer to raise as much as 10 billion shillings this year have been shelved, Oigara said. He didn’t give a new schedule.