Absa profit declines 85pc on provisions for defaults

Absa Bank Kenya’s #ticker:ABSA net profit dropped by a record 85 percent in the half year ended June to Sh588.9 million as the lender’s raised provisions for coronavirus-related defaults.

The Nairobi Securities Exchange-listed firm’s net earnings stood at Sh3.8 billion a year earlier.

Absa did not declare an interim dividend, saving Sh1 billion based on its previously unbroken tradition of paying Sh0.2 per share.

KCB Group #ticker:KCB and Standard Chartered Bank Kenya #ticker:SCBK also skipped interim dividends as banks focus on preserving capital.

Absa’s profit drop is now the highest among the big banks, beating KCB’s 40.4 percent slump to Sh7.5 billion in the review period.

Some lenders like Family Bank have, however, reported double-digit earnings growth in a signal that institutions less exposed to coronavirus-beaten sectors such as tourism, transport and trade are doing relatively better.

Absa’s performance was largely the result of loan loss provisions rising 3.2 times to Sh5.3 billion despite the stock of bad loans increasing at a slower rate of 8.3 percent to Sh17 billion.

The bank’s chief financial officer Yusuf Omari told Business Daily that out of the provisions, Sh3 billion represents the general weak economic outlook due to the Covid-19 pandemic.

“We are making provisions even for loans that are still performing. The amount could reverse if the pandemic is contained and economic activities pick up,” Mr Omari said.

He added that other provisions were caused by defaults among a few large corporate customers.

Absa has so far restructured loans worth Sh57 billion, representing 28 percent of its loan book.

The lender’s earnings were also dragged down by costs of rebranding from its former parent company Barclays Plc.

The costs, including technology change and marketing expenses, nearly tripled to Sh1.6 billion from Sh560 million.

Absa’s interest income rose by a marginal 0.8 percent to Sh15.3 billion despite significant expansion of the loan book and investment in government debt securities.

Loans and advances jumped 8.1 percent to Sh201.9 billion while holdings of State bonds and T-bills increased 13.3 percent to Sh92 billion.

“Interest income was held down because we lowered the rate on customer loans in response to the fall in the Central Bank Rate,” Mr Omari said.

The signalling rate has averaged 7.25 percent in the review period compared to nine percent the year before, partly contributing to average commercial bank lending rates falling to new a low of 11.8 percent in June.