Covid-19 has exposed the hidden difference in ability of commercial banks to absorb shocks, majorly on account of the business models and kind of customers they deal with.
Many top financiers who have been posting stellar performances over the years, now find themselves in unfamiliar territories of deep profit falls thanks to the Covid-19 menace.
Top banks–KCB, Equity, Cooperative Bank, Absa, Stanbic, DTB and Standard Chartered Bank of Kenya–saw a combined Sh22.56 billion decline in profitability in the nine months to September.
KCB contributed 36.7 percent of the fall followed by Absa Kenya (16.12 percent), Equity (10.8 percent) and NCBA with 9.25 percent of the Sh22.56 billion fall. Co-op Bank had the least contribution (4.92 percent) in the drop.
In terms of falls in net profit, Absa took the heaviest hit (65.4 percent), followed by NCBA (45.3 percent), KCB (43.2 percent), StanChart (30.41 percent) and Stanbic with 30.1 percent dip.
The declines leave them as possible candidates of profit warnings as is required by the Capital Markets Authority unless they post recoveries in the last quarter to narrow declines to below 25 percent which seems a very tall order.
Huge declines
The smallest drop among the top banks came from Co-op Bank with profits falling by 10 percent to Sh9.8 billion. That of Equity was 13.92 percent dip.
Many lenders such as NCBA are now expecting huge declines in full year earnings while just a few project a modest fall.
"The earnings for the current financial year are expected to be substantially lower than the earnings reported for the same period in 2019," NCBA cautioned last week.
The pandemic, akin to a typical "black swan" event has seen banks that have for long been regarded as models of prudence and risk containment, post dramatic declines in performance.Central Bank of Kenya (CBK) has had to issue a circular asking all lenders to revise their capital levels to reflect the prevailing economic hardships before making any dividend payment decision."The duration and extent of the pandemic remains uncertain and it is critical that these institution remain resilient by strengthening their balance sheets through additional capital and adequate liquidity," said CBK in mid-August.The results and CBK circular serves as alarm bells ringing in the ears of shareholders of the sector that has had a strong history of dividend payouts.The varying performance of banks–yet all reeling from the same unprecedented Covid-19 disruption– is perhaps the most diverse scenario the sector has seen […]
