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.
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 in recent memory.
More than any other recent phenomenon, Covid-19 has severely tested and exposed the level of resiliency and sustainability of the different business models operated by Kenyan banks.
Further, the level of Covid-19-related provisioning that banks have had to make in appreciation of challenges facing businesses and households has also exposed the effectiveness-- or lack of it-- of existing credit risk analysis tools.
While some banks have had to provide for nearly their entire loan books, their peers went for modest provisions.
The level of provisions made all the big difference, with the kind of clients different banks serve, being a key determinant in the level of risk exposures.
For instance, Equity, KCB, Stanchart, DTB and Absa raised their loan loss provisions by 686 percent, 243 percent, 274 percent, 232 percent and 147 percent respectively.
This was in stark contrast with 89 percent rise and 75 percent jump by Co-op Bank and Stanbic respectively.
Analysts reckon that the different levels of rise in provisions had to do with the kind of clients they serve. Banks with outsized exposure to mainstream corporate business, which took heavy beating by the Covid-19 shutdowns had to make large provisions.
For instance, AIB-AXYS Africa says KCB is likely to rise provisions given the sectors it has heavily lend to.
"The general slowdown in the real estate sector together with low occupancy levels and exposure to SMEs may see provisions rise further towards the end of year," says AIB-AXYS.
Lenders whose market positioning is heavy-leaning on large private sector clients in sectors such as transport, hospitality, trade and horticulture had to raise provisioning to reflect the heavy disruption that befell these sectors.
For Absa, AIB-AXYS Africa analysis says retail sector and high unsecured loans is a point of concern.
"Given the bank's high exposure to the retail sector and unsecured loans, we remain concerned that the slowdown in business activity due to the prevailing pandemic may see the cost of risk rise further," says AIB-AXYS Africa.
DTB and Equity, whose client focus is largely SMEs and consumer lending posted modest drops as several subsectors braved Covid-19 disruption with reasonable success.
Co-op Bank came out as an outlier with a modest profit decline of 10 percent. This may be explained by the bank's outsized customer focus on consumer lending, especially public sector payrolls that continue to enjoy full incomes in the pandemic.
Most public sector customers are still paying loans as was the case pre-Covid period since they remain in employment and their payrolls are still being processed.
About 80 percent of Co-op's unsecured loans tend to favour government employees, State parastatals and quasi-government bodies.
In addition, the bank's lending exposure to saccos such as Mwalimu National Sacco and Harambee Sacco, majority of whom are patronised by civil servants and other public sector employees has also worked to its advantage.
With the fallout from Covid-19 expected to continue ravaging the economy well into the second quarter of 2021 banks business models will remain closely watched.