Banks swim out of Covid-19 blues to post higher profit

Kenyan banks may be swimming out of the Covid-19 storm with most of them now recording a rise in net profits in the first quarter of 2021.

Equity Bank’s net profits rose by 64 per cent in the period between January and March at the back of increased income even as the listed lender controlled the growth of expenses.

The bank made a profit after tax of Sh8.7 billion in the period under review compared to Sh5.5 billion that it posted in the first quarter of 2020.

Equity outshone its closest rival KCB which made a profit after tax of Sh6.37, an increase of 1.7 per cent from Sh6.26 billion in the first quarter of 2020.

Equity Group Chief Executive Officer James Mwangi noted that the performance was largely due to the lender's prudence which saw them push a lot of their business to Treasury and non-funded income even as their provisioning costs went down.

As a result, Equity’s total income grew by 31 per cent to Sh25.5 billion compared to costs which increased by eight per cent.

“The sustainability of that profitability comes from the top line. The fact you could have topline growing at 31 per cent, 32 per cent, then shows sustainable profitability going forward,” said Mwangi in an interview with The Standard after the investor briefing.

He noted that the dynamism of the Kenyan and the Democratic Republic of Congo (DRC) markets - Equity’s first and second-largest markets, means that revenues continue growing exponentially as they can be deployed quickly.

Equity boss said the costs will continue to shrink as the bank unlocks the synergies in DRC and reduction in units cost is driven by the very rapid growth that DRC is experiencing. Equity recently unveiled its newest subsidiary in DRC, BCDC Equity.

"The group adopted a prudent approach last year and decided to take the hit on using IFRS 9 computation of the lifetime risk of the book that was existing last year. And that why you don’t see any additional provisioning for the book that we adopted at the beginning of the year,” said Mwangi.

KCB Chief Executive Joshua Oigara said the growth in profitability was due to the cost-saving initiatives and increase in net interest income.

“The economic environment marginally improved in the quarter although uncertainties from the pandemic remain a big risk to the outlook,” said Oigara in a statement, adding that waiver of fees on mobile lending affected non-funded income which remained subdued.

KCB's group total income grew at a slower rate to Sh23 billion from Sh22.9 billion. Interest income increased to 21.9 billion from 20.2 billion in the period under review.

KCB’s total costs also remained flat from last year closing at Sh11.1 billion.

Compared to Equity whose ratio of non-performing loans to gross loans was at 11 per cent, KCB’s was at an elevated level of 14.8 per cent compared to 11.1 per cent last year.

NCBA Bank’s net profit also increased by 74 per cent to Sh2.8 billion compared to Sh1.6 in the first quarter of 2020, helped by massive growth in digital loans.

NCBA disbursed Sh134 billion during this period. “We are immensely proud of our strong financial results during the first quarter, NCBA Group has demonstrated the ability to tightly balance strong credit discipline with its commitment to support its customers during this period,” said NCBA Group Managing Director John Gachora.