Kenya's Biggest Bank Posts First Profit Drop on Bad LoansBy
Net income falls 4%; first decrease since bank founded in 2004
Shares fall most since August, extending post rate-cap slide
Equity Group Holdings Ltd. posted its first-ever drop in annual profit, missing analysts’ expectations for an increase, as non-performing loans at Kenya’s biggest bank by market value more than doubled. The stock head for it’s biggest fall in six months.
Net income declined to 16.5 billion shillings ($161 million) in the 12 months through December from 17.3 billion shillings a year earlier, Chief Executive Officer James Mwangi told reporters Wednesday in the capital, Nairobi. That compares with the 18.7 billion-shilling median of six analyst estimates compiled by Bloomberg.
Bank failures in Kenya at the end of 2015 and early 2016, coupled with a government decision in August to cap commercial lending rates, resulted in a “very turbulent” operating environment in the country last year, Mwangi said. “We have tempered our strategic plan.”
A 23-percent increase in income from interest charges on loans is under threat after President Uhuru Kenyatta in August imposed a cap on commercial lending rates. Growth in loans to the private sector eased to the slowest pace since at least 2005 in December, when they increased 4.3 percent compared with 18 percent a year earlier.
Equity’s shares dropped 5.2 percent to 27.50 shillings by 12:46 p.m. in Nairobi, bringing the decline since rates were capped in August to more than 20 percent. A close at that level would mark the biggest one-day slide since Aug. 29.
Non-performing loans surged to 18.8 billion shillings from 9.1 billion shillings as loan-loss provisions almost tripled to 6.65 billion shillings.
Equity more than doubled lending to the government last year to 100.6 billion shillings. That helped boost income from investments in government securities by 80 percent to 7.88 billion shillings. The bank’s total loan book shrank 5 percent to 213.8 billion shillings.
“The rate caps have forced them to rebalance their assets and move away from loan growth, which was driving earnings growth for the last decade, to a more conservative position of holding more government securities and retaining a more liquid balance sheet,” Francis Mwangi, an analyst at Standard Investment Bank in Nairobi, said in an interview.
The drop in annual profit was the first since Equity became a fully fledged commercial lender in 2004, according to data compiled by Bloomberg. Loan-loss provisions increased to 6.65 billion shillings compared with 2.43 billion shillings a year earlier.
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