Equity Bank and NCBA are the latest top tier banks to report double digit drops in profitability for the year ended December 2020, as lenders are hit hard by huge provisions for bad loans triggered by the Covid-19 pandemic.
The two now join Absa Bank, Co-operative and KCB in the list of big banks who have reported significant declines in net profit, weighed down by higher provisions for bad debts.
NCBA yesterday reported a 42 per cent dip in profit after-tax to Sh4.6 billion, the second biggest drop among top tier lenders after Absa Bank, after it increased its bad loan provisions by Sh20 billion.
Absa Bank last week reported a 44 per cent drop in profits to Sh4.1 billion after it more than doubled its loan loss provision to Sh9 billion.
Banks make provisions for bad loans to deal with potential loan defaults and related expenses. The provisions come at a time when the industry is witnessing a sharp rise in non-performing loans, necessitating the huge provisions which are now hitting banks bottom lines, hard.
NCBA said despite the pandemic, it increased its net operating income by 38 per cent to Sh 46.4 billion. Its total interest income also surged by 73 per cent to Sh44.2 billion.
However this rise was wiped away by the increase in provision for bad debts as it prepared to deal with defaults. The lender said its non-performing loans rose 19 percent to Sh40.1 billion in the period.
Despite the profit slump, the lender said the Group disbursed over Sh432 billion in digital loans to small enterprises and individuals, giving a peek into how lucrative mobile loans are becoming to banks.
This is the first time NCBA is announcing full year results as an entity following its merger from the NIC Group PLC and CBA in October 2019.
"We implemented a robust cost containment plan that reduced operating expenses and contributed to the operating profit increase," NCBA said in a statement.
The lender said it restructured loans worth Sh78 billion and increased credit provision reserves by Sh20 billion to address the uncertain economic environment that continues to persist.
"The high levels of credit provisions taken resulted in a year over year drop in profit after tax of 42 per cent," the lender said.
NCBA said that as a result of the pandemic, the economic outlook for 2020 was lowered substantially, due to slowdown in global trade, services and the continued uncertainties around the pandemic impacting exports, tourism and agribusiness sectors.
On its part, Equity bank reported an 11 per cent drop in profits after tax to Sh20 billion for the same period.
Its total interest income rose 23 per cent to Sh73.7 billion in the year under review as total operating expenses rose from Sh44.2 billion to Sh72.6 billion, a 64 per cent jump.
Equity has for the second time not declared any dividend for year ended December 31, 2020.
"The Board of Directors do not recommend payment of a dividend in respect of the year ended 31 December 2020," the lender said in a statement to investors on Monday.
The lender increased its loan loss provision by more than five times from Sh5.3 billion to Sh26.6 billion. Equity bank said in its financial statements that its non-preforming loans surged by 58 percent to Sh50.6 billion in the year under review.
KCB reported mid this month reported a 22 per cent decline in net profits to Sh19.6 billion in the same period in the wake of increased provisions for coronavirus-related defaults.
The lender had reported net earnings of Sh25.1 billion the year before. The reduced profit came as loan loss provisions tripled to Sh27.5 billion from Sh8.8 billion, with the lender responding to non-performing loans (bad loans) rising to Sh96.6 billion from Sh63.4 billion.
"The pandemic significantly affected our business across the markets we operate in, with most of them going into some degree of lockdown," KCB chief executive Joshua Oigara said.
Absa last week reported a 44 per cent drop in profits, Co-operative Bank (24 per cent drop), StanChart (33.9 per cent) and Stanbic had its profits decline by 18.6 per cent.