East Africa’s listed banks have reported either flat or reduced profit for the first three months ended March 31, setting the pace for a year of subdued performance as the Covid-19 pandemic stifles economic activity.
The banks’ first quarter performance shows both interest and non-interest income came under immense pressure, as loan loss provisions increased sharply.
A steep drop in growth of the loan books in the face of uncertainties triggered by lockdowns and restrictions of movement to curb spread of the deadly virus indicates that it will not be business as usual for the lenders, who are accustomed to reaping huge profits even in economic downturns.
"Banks will remain sceptical on lending (especially to retail and SMEs). Expect them to put cash in government securities but that cannot guarantee 100 per cent absorption of new deposits," said Eric Munywoki, a financial analyst at Goodson Capital Partners.
Mr Munywoki predicted that the lenders will have to compete with fund managers, insurance companies, institutional investors and high net worth individuals who are also looking to buy low-risk government securities, hence shrinking their profit margins.
Shareholders also face diminished prospects for dividend payouts, with some already having to contend with cancellation of last year’s disbursements.
Maendeleo Bank Plc (Tanzania), Bank of Kigali, Equity Bank, Standard Chartered Bank (Kenya), Stanbic Bank Kenya and I&M holdings all recorded reduced profits while mortgage lender Housing Finance sank deeper into the loss making territory in the first quarter.
Absa Bank Kenya and Co-operative Bank announced flat profits, while KCB and Diamond Trust Bank recorded single-digit growth in net earnings between January and March.
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The Covid-19 pandemic hit Africa’s shores in mid-February, triggering a flurry of lockdowns and restrictions on movement.
Global credit ratings agency Moody’s Investor Service last month changed the outlook on the long- term deposit ratings of KCB, Co-op Bank and Equity Bank to negative from stable.The review followed Moody’s affirmation of Kenya government’s B2 rating but change in its outlook to negative from stable.Analysts reckon that banks will not be ready to take risks of lending to the private sector, whose businesses have been hard hit by the Covid-19 pandemic.This will effectively leave the lenders sitting on idle cash, meaning that even depositors will not get good returns.Regional central banks have implemented intervention measures to boost liquidity in the banking system and ensure that lenders extend the relief to borrowers whose cash flow positions have been affected by the Covid-19.In […]
