Bank profits drop as virus ups risks

Several banks have registered a decline in profitability for the first three months of the year as Covid-19 continued to ravage through their balance sheets.

At least six banks posted a lower profit after tax in the first quarter compared to a similar period last year, with most attributing the lower performance to the adverse economic effects of the pandemic.

Standard Chartered Bank’s (StanChart) net profit declined by a fifth to Sh2 billion during the period from Sh2.4 billion that the tier-one lender made between January and March last year.  

Its income was down Sh7 billion year-on-year due to margin compression and a one-off revenue in the prior year.

The bank’s operating expenses rose to Sh3.6 billion, attributed to investments in technology and loan loss provisions, which went up marginally to Sh428 million.

“We expect this to deteriorate in the next two quarters driven primarily by the economic impact of the Covid-19 pandemic,” said StanChart Chief Executive Kariuki Ngari.

The lender’s total income grew to Sh7.4 billion from Sh6.9 billion.

I&M Bank also registered a lower profit of Sh1.65 billion during the period under review from Sh1.85 billion in the first quarter of 2019.

Other banks that reported reduced profitability were Equity Bank, Bank of Africa, SBM and Credit Bank.

Equity Bank, the country’s second-largest bank, saw its net profit decline by 14 per cent to Sh5.3 billion as the lender significantly shored up the buffer against loan defaults.

Conservative approach

Equity reported a Sh6.15 billion after-tax profit in a corresponding period last year.

But owing to the adverse effects of Covid-19, the lender put aside Sh3.1 billion as insurance against potential loan defaults in the first quarter, and called back a Sh9 billion dividend to shareholders.

“The Equity Group Holdings Board took a conservative approach that recognises the emerging unquantified risk of the pandemic and opted to preserve capital in the face of the prevailing uncertainty,” said Chief Executive James Mwangi.