Local commercial banks have cut their funding cover on expected credit losses in return to higher profitability through the first quarter of the year.
A new analysis covering 10 of Kenya’s listed banks by Cytonn Investment shows loan loss provisions grew at a slower rate of 5.5 per cent in the quarter to March 2021. This from a greater growth rate of 233.3 per cent across the 2020 financial year to December.
According to analysts at Cytonn, the lower provisions are reflective of improving business conditions following the entry of the corona-virus induced downturn in the economy.
The lower provisioning has served to trim bank’s overhead costs leaving a wider margin for profitability.
An analysis of Kenya’s top four bank’s balance sheets by Citizen Digital rounds off to equivalent findings with most of the lender’s earnings in the quarter being backed by the lower covers for loan defaults.
Kenya’s largest bank by asset base, Equity Group for instance shed Ksh.1.8 billion in provisioning costs for bad loans to just Ksh1.3 billion in the quarter on its way to a 62 per cent rise in quarterly profit.
On its part, KCB had unchanged loan-loss provisioning level at Ksh.2.9 billion as its profits to March picked up slightly by 1.6 per cent to Ksh.6.4 billion.
Moreover, NCBA trimmed its coverage for bad loans to Ksh.2.6 billion from Ksh.3.8 billion at its earnings nearly doubled to Ksh.2.8 billion from Ksh.1.6 billion in March 2020.
Co-operative bank was the only exception among the four having raised its coverage for bad loans to Ksh.2.3 billion from Ksh.900 million a year earlier.
Banks profitability in the quarter found anchoring in other metrics including interest earnings with total interest income soaring by 14.7 per cent, beating last year’s growth of 8.2 per cent.
At the same time, deposits marked a 21.8 per cent growth rate from 14.3 per cent last year while core earnings per share (EPS) improved by 28.4 per cent from a 7.3 per cent decline.However, growth in non-funded income (NFI slacked to just 2.9 per cent from 15.9 per cent on the waiver of fees on mobile transaction and free bank-mobile money transfers.Despite the reduction of bad-loans cover, the non performing loan coverage ratio (NPL) improved to 62 per cent from 57.4 per cent.The gross NPL ratio nevertheless worsened to 13.5 from 11.4 per cent, the highest rate ever and higher than the five year average of 10 per cent.According to data […]
