StanChart earnings decline 31pc on corona defaults

Standard Chartered Bank of Kenya #ticker:SCBK reported a 31.2 percent net profit drop in the half year ended June on higher provisions for coronavirus-related defaults and reduced income from loans.

The bank’s earnings stood at Sh3.2 billion in the review period compared to Sh4.7 billion a year earlier.

The lender did not declare an interim dividend, joining others like KCB Group #ticker:KCB that also suspended payouts to conserve capital.

Suspension of the cash distribution has seen StanChart save Sh1.8 billion, based on its previous payout of interim dividends of Sh5 per share.

Its loan loss provision jumped 4.2 times to Sh1.6 billion in response to gross defaults rising 5.6 percent to Sh20.9 billion.

“Loan loss provision is up significantly year-on-year … driven primarily by the impact of Covid-19 and the resultant deterioration in the macroeconomic outlook,” StanChart said in a statement.

Kenya confirmed its first case of coronavirus on March 12, setting off a series of public health measures that have hurt workers’ and companies’ earnings.

The measures included closure of bars, a ban on international travel and lockdown of counties like Nairobi and Mombasa.

Some of the restrictions have been removed, but the economic damage is expected to linger for months, with banks having started to feel the heat in the second quarter beginning April.

StanChart has restructured loans worth more than more than Sh22 billion to give financial relief to clients impacted by the pandemic.

Besides the higher provisioning, the bank also suffered from a 6.2 percent drop in interest income to Sh11.9 billion.

This came despite the loan book and investment in government debt expanding 11.8 and 3.2 percent respectively to Sh134.3 billion and Sh101.1 billion.

The bank attributed the reduced income to thinner lending margins besides a one-off revenue item that was absent in the review period.

Non-interest, including fees and commissions on transactions, similarly contributed to the lower profit after declining 6.5 percent to Sh4.4 billion.

The Central Bank of Kenya (CBK) removed charges on cash transfers between mobile money wallets and banks accounts from March 16 until the end of the year, costing lenders substantial revenue.

Operating expenses, including the loan loss provision, increased 13.7 percent to Sh8.6 billion.

StanChart’s interest expenses meanwhile dropped 12 percent to Sh2.5 billion despite customer deposits increasing 12.2 percent to Sh256.4 billion, signalling reduced rates on interest-bearing accounts.