Regional lender, KCB Group, has reported a 40 per cent drop in net profit for the first half of the year, owing to factors linked to the Covid-19 pandemic.
The bank recorded a net profit of Ksh7.57 billion ($75.7 million) compared to Ksh12.72 billion ($127.2 million) in the same period last year.
Following the news however, the lender attributed the dip to increased provisions in the wake of higher credit risk due to the Covid-19 pandemic.
According to the bank’s financial statement, KCB set aside Ksh11 billion ($110 million) in provision for potential loan losses that could crystalize as a result of the pandemic impact, compared to Ksh3 billion ($30 million) during the same period last year.
KCB CEO Joshua Oigara said, the March to June period has been the most difficult quarter for nearly ten years at the bank, citing the provisions the lender has been forced to make as ‘catastrophic’.
“This has been catastrophic. Never have we seen our provisions increase from an average of Sh3 billion to more than Sh11 billion,” Oigara said.
Additionally, he pointed out that the cost of risk has risen by four times from 1 percent to 4 percent.
“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,” Oigara said in a statement.
However, he also highlighted that, “We intend to keep on this promise even under the current worsening operating environment,” said Mr Oigara.
All was not lost
The silver lining was in its operating income which grew by 17 per cent to 45 billion shillings in the period compared to Sh38.6 billion in June 2019.
Data from the bank also indicates that net interest income was up 22 per cent to Sh31.1 billion from Sh25.4 billion.
The proportion of non-branch transactions rose to 98 per cent up from 95 per cent in the second quarter of 2019 mainly driven by mobile, Internet and agency banking.
For the six months, the ratio of non-performing loans (NPLs) to total loan book increased to 13.7 percent from 7.8 per cent in 2019, mainly due to consolidation of NBK and heightened defaults associated with the pandemic.
The stock of NPLs increased to Sh83.9 billion up from Sh39.1 billion in 2019.
“The Group maintained healthy buffers on its capital ratios over the minimum regulatory requirement,” the lender said.
“We project a continued strain on the business and economy in the remaining part of the year as the Covid-19 pandemic evolves.
Despite the tumble in profit made, “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,” Oigara asserts.