Barclays Bank of Kenya saw its margins dip in the first nine months this year to post a Sh6 billion profit after tax, down from Sh6.4 billion in a similar period last year.
The bank Group’s profits were clawed back by bad debts, which rose to Sh10.4 billion, prompting it to make Sh4.5 billion provisions. Bad loans stood at Sh6.9 billion a year ago.
AHEAD OF FORECAST
Analysts at Standard Investment Bank (SIB) said a Non-performing Loan (NPL) ratio of 6.6 per cent, levels that were last seen in 2010, was way ahead of their 2016 forecast of 5.5 per cent.
“A jump in loan loss provision weighed down earnings since the net operating income before provisions was up 17.3 per cent year on year,” SIB researchers said in a note to investors.
The bank, whose shares are trading at an average of Sh8.5, became the first among the big lenders to report shrinking profits.
The country’s biggest lender by assets, Kenya Commercial Bank (KCB), led the pack with a Sh15.9 billion profit, trailed closely by Equity Bank, with Sh15.1 billion for the nine months to September.
However, Equity’s net profit was up by 18 per cent from Sh12.8 billion last year, while KCB’s was up 15 per cent from 13.9 billion after tax profit reported in September last year.
Researchers at SIB noted Barclays Bank recorded an impressive growth of its balance sheet, with loans growing from Sh138 billion to Sh158 billion and deposits surging from Sh159 billion to Sh180 billion during the period under review.
The bank may not replicate this growth and the interest rate-capping regime as analysts point out that with lower margins and a need to protect return on equity, management is likely to opt for conservative growth.
“In light of the new interest capping law, we expect further net interest margin erosion going forward. We expect a slowdown in loan book growth given that the new rates do not leave room for risk pricing and hence may lead to some borrowers being locked out,” said SIB in the note to investors.