KCB Group has reported a 40% drop in net profit for the first half of 2020. The huge drop follows the effects of the Covid-19 pandemic that have hit hard the global economy.
This comes after the lender posted Sh7.6b in after-tax profits for the first six months of 2020, marking a 40% decline from the Sh12.7b in 2019.
The lender attributed the dip to increased provisions in the wake of higher credit risk due to the Covid-19 pandemic.
KCB boss Joshua Oigara said “The March to June period has been the most difficult quarter for nearly ten years at the bank,” said the bank’s CEO, describing the provisions the lender has been forced to make as “catastrophic”.
“Never have we seen our provisions increase from an average of Sh3 billion to more than Sh11 billion. Because we have seen weaknesses in customers behaviour and customers repayment, we have seen a strong increase in our provisions,” Oigara said adding the cost of risk has risen by four times from 1 to 4%.
“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,” the CEO said in a statement revealing that when the virus hit Kenya in March, KCB made a commitment to look after its customers, staff and other stakeholders while pursuing business continuity.
“We intend to keep on this promise even under the current worsening operating environment,” he said.
KCB Group, in response, has instituted a raft of interventions to cushion and support key stakeholders including customers and employees.
For the period under review, the Bank restructured facilities worth Sh101 billion to cushion customers against the effects of the crisis, 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 a thousand shillings.
The bank’s operating income however, grew by 17% to Sh45b in the period compared to Sh38.6b in June 2019.
Net interest income was also up 22% to Sh31.1b from Sh25.4b, riding on additional investments in Government securities and lending.
Non-funded income grew up 6% to Sh14b from Sh13.2b, driven largely by revenues from the digital proposition, growth in the forex income and additional income from National Bank of Kenya, the newest subsidiary of KCB Group.
The proportion of non-branch transactions rose to 98% up from 95% in the second quarter of 2019 mainly driven by mobile, Internet and agency banking, as total operating expenses rose by 20% on the back of the National Bank of Kenya (NBK) acquisition.
“The synergies from the acquisition and the Group-wide cost management drive are expected to improve this position in the second half of the year,” the bank said.
The bank’s total assets grew by 28% to Sh953.1b, funded by customer deposits and existing business growth. At the same time, net loans and advances grew 17% to close at Sh559.9b while customer deposits grew by 35% to Sh758.2b.
Th ratio of non-performing loans (NPLs) to total loan book increased to 13.7% from 7.8% in 2019, mainly due to consolidation of NBK and heightened defaults associated with the pandemic, increasing NPLs stock to Sh83.9b up from Sh39.1b in 2019.
Shareholders’ equity grew 12% from Sh117.5b to Sh132.1b driven by the growth in retained earnings over the 12-month period to June 2020.
The Group’s core capital as a proportion of total risk weighted assets closed the period at 17.9b against the Central Bank of Kenya statutory minimum of 10.5%. Total capital to risk-weighted assets stood at 19.5% against a regulatory minimum of 14.5%.
The group plans to inject additional capital before the end of the year to ensure compliance and support the turnaround strategies expected to drive performance.
“We project a continued strain on the business and economy in the remaining part of the year as the Covid-19 pandemic evolves. We will accelerate our support to customers, roll out cost management initiatives and seek avenues to boost efficiency through digitization to cushion the business from emerging pressures,” said Mr Oigara.