Top banks save Sh51bn from unpaid loan losses

Guests follow proceedings during a Kenya bankers meeting in Nairobi on October 15, 2019. FILE PHOTO | NMG Kenya’s top eight banks cut their provisions against loan defaults by nearly half last year, helping drive the combined net profit by 80.29 percent to Sh132.41 billion.

KCB #ticker:KCB , Equity #ticker:EQTY , Co-op Bank #ticker:COOP , Absa Bank Kenya #ticker:ABSA , NCBA #ticker:NCBA , Standard Chartered Bank Kenya #ticker:SCBK , DTB #ticker:DTK and Stanbic Holdings #ticker:SBIC cumulatively slashed provisions to Sh55.93 billion in the review period, from Sh106.94 billion in 2020 — reflecting a drop of 47.69 percent or Sh51 billion.

The drop in loan loss provisioning, costs associated with unpaid credit, helped most of the banks to post triple-digit profits and usher in a dividend boom.

The cut in loan loss provision reflects the gradual resumption in debt repayment amid recovery from Covid-19 economic hardships that triggered layoffs, job cuts and business closures.

“While the industry provisions might have come down, we still do have some pressure on hospitality where we are well represented as well as construction. We have seen those sectors are taking a while to recover,” KCB chief finance officer Lawrence Kimathi said on March 16.

“We have taken a prudent approach that ‘let us downgrade those (sectors), take time to rectify them and do recoveries’.”

Reduced provisions have the effect of lifting the bottom line and ultimately dividends, which nearly tripled to Sh49.2 billion from Sh16.9 billion for the eight banks.

Beginning January 1, 2018, banks have been required to make provisions for expected loan losses rather than those already incurred following the adoption of the more conservative International Financial Reporting Standards (IFRS 9).

This made provisions the biggest profit driver in Kenya’s banking sectors since the onset of Covid-19 in March 2020.

Equity, which emerged top in profit standings for 2021, cut its provisions by the largest margin of 78.05 percent or Sh20.79 billion followed by KCB Group (Sh14.22 billion or 52.27 percent), Stanbic Bank (51.10 percent or Sh2.2 billion) and Absa Kenya (47.83 percent or Sh4.32 billion).

Provisions at StanChart dropped 46.38 percent or Sh1.80 billion, NCBA 37.79 percent or Sh7.72 billion and Co-op Bank 2.25 percent or Sh182.57 million.Diamond Trust Bank, however, bucked the trend amongst top-tier lenders — which control about three quarters of the market share — with its impairments rising a modest 3.19 percent or Sh233.68 million.Central Bank of Kenya (CBK) data flagged motor vehicle owners and homebuyers as […]

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