Banks have posted the lowest 11-month pre-tax profit in eight years, pointing to the massive disruption of Covid-19 to the sector that has enjoyed a history of strong growth in earnings.
Latest data from the Central Bank of Kenya (CBK) shows that the pre-tax earnings in the period ended November 2020 declined by 28.2 percent to Sh107.7 billion from Sh150.1 billion posted a year earlier.
This is the lowest 11-month pretax earnings for the banking sector since 2012 when the sector returned Sh98.8 billion and signals that full year net earnings are likely to fall.
Standard Chartered Bank Kenya #ticker:SCBK, Absa Kenya #ticker:ABSA, Cooperative Bank of Kenya #ticker:COOP, DTB #ticker:DTK, I&M Holdings #ticker:I&M and NCBA #ticker:NCBA have all issued profit warnings, signalling they expect more than a 25 percent fall in full year net earnings.
The decline in profits has come on the back of Covid-19 disruptions that ushered in increased loan defaults and applications for extension in repayment period in the wake of retrenchments and salary cuts as firms reacted to falling revenues.
The weaker performance came in the period of slowed economic activities and increased debt defaults as Kenya imposed strict measures to control the spread of Covid-19.
Bank borrowers defaulted Sh73.05 billion in ten months to December alone amid the Covid-19 induced economic hardships that triggered massive layoffs and pay cuts.
CBK data showed that the value of loans defaulted hit Sh423 billion or 14.1 percent of the total Sh3 trillion loan book in December, representing a sharp rise from Sh351.73 billion that was in default by end of March.
The weakening strength of borrowers to honor loan repayment coincides with the prevailing tough economic times facing households since the first case of Covid-19 was confirmed in Kenya in March.
The defaults have seen the non-performing loans (NPLs) ratio ratio rise to 14.1 percent—the highest since August 2007—when it stood at 14.41 percent. The mounting NPLs is despite banks having allowed customers to extend repayment periods on loans worth Sh1.63 trillion by end of December, an equivalent of 54.2 percent of total loan book.