BAD DEBTS? NO FEAR BY KENYAN BANKS BUT...
If first quarter figures to March 2017, are anything to go by, then Kenyan banks, unlike Nigerian ones, do not fear for avalanche of bad debts this year but, they may have to grapple with decrease in earnings.
Henates is privy to first quarter results from six quoted Kenyan banks or groups with banks as flagship subsidiary. They are KCB Group, Equity Group, NIC Bank; Diamond Trust bank; Barclays bank and Standard chartered bank.
A study of these results revealed decreased provision for loan loss in all but one; decline in gross earnings in all, again but one and interestingly, profit margin decline and increase in equal number.
The loner with increased loan loss provision was Standard Chartered bank (SCB) which increased it bad debt provision by 6.04%. However, not only is not comparable to growths recorded by Nigerian banks in recent times, it was in fact in lieu of 6.46% increase in its loans and advances when compared to first quarter of 2016.
Of the six banks, though, only Equity bank reported 4.77% drop in loans and advances, all else reported increases with KCB's 14.3% topping the bill followed by Barclays' 10.7%. Yet all of them except SCB provided for less loan loss. Top loan loss provision drop was NIC bank's 33.4% which was accompanied by 3.87% rise in loans and advances; followed by KCB's 30% decrease and 28.4% decline in the provision made by Diamond Trust bank (DTB) which accompanied 4.81% growth in loans and advances.
Barclays bank had the least drop in this provision (down 2.91%) while Equity bank reported 13.1% decrease. Decoded: Kenyan banks seem to have less fear of bad debts in 2017.
However, it looks like they are headed for a year of drops in gross earnings in most cases driven by interest income decline. The quarter's top drop in gross earnings was reported by NIC Bank (13.7%) and all else recorded less than half of this %. In perking trail, Barclays reported 5.8% decrease; KCB had 5.07%; Standard chartered reported 2.86% decline while Equity bank's gross earnings eased by 1.64%.
The lone ranger was DTB with 0.96% increase in total income within the quarter when compared to 2016 first quarter. This was driven by 8.25% growth in non-interest income as against only 0.08% rise in interest income.
In the end, three each had higher and lower profit margins within the quarter. Top reported profit margin based on total gross income was Equity group with 38.8% but this was a major drop from 2016 1st quarter's 40.3% principally because the 21.5% growth in non-interest income was not enough to counter the 11% drop in interest income; and only 0.49% decrease in operating expenses resulting in 5.30% drop in profit before tax.
KCB with though lower 33.5% profit margin fared better because it was an increase on previous 32% driven by 20.3% increase in non-interest income which was strong enough to checkmate 12% drop in interest income and 5.03% rise in expenses leading to only 0.34% drop in profit from 5.07% drop in gross earnings.
Barclays bank reported 28.7% margin for the quarter, being double digit, it was still comfortable but was quite a drop from 32.7% previously and this occurred because profit before tax tumbled 17.2% under pressure from 7.78% decrease in non-interest income; 5.04% decline in interest income and only 1.24% decrease in expenses.
Not too far behind was DTB with 27.6% profit margin which was a marked increase previous 26.4% as very marginal 0.12% increase in expenses fell behind the increase in gross earnings for a final 5.63% increase in profit before tax.
The lowest profit margin, 25.8%, was reported by NIC Bank but this was strong increase on 2016 1st quarter's 22.8% essentially as profit of 2.19% was far behind the 13.7% drop in gross earnings.
For most of the banks too, there was no fear for customer deposit growth although only DTB (22.1%) and Equity bank (16.1%) recorded above 10% growth. The least was 1.12% increase reported by SCB.
For three of the banks, if 2016 was anything to go by, first quarter may already have contributed more than its fair share of the year's profit because that was what happened in 2016. In that year, 1st quarter accounted for 29.2% of Equity bank's full year profit; 28% of that of Barclays bank and 27.5% of SCB's full year profit. If this remains the 2017 trend, then do not expect margins too far from the 1st quarter's.
The rational contribution of any quarter to overall should be 25% hence if KCB and NIC's 22.7% 1st quarter contribution in 2016 and DTB's 22.5% should lead to higher % contributions ahead. Of course, any bank management can change the trend by taking measures to shrink cost further and earn more in the rest of the year.
Henates is privy to first quarter results from six quoted Kenyan banks or groups with banks as flagship subsidiary. They are KCB Group, Equity Group, NIC Bank; Diamond Trust bank; Barclays bank and Standard chartered bank.
A study of these results revealed decreased provision for loan loss in all but one; decline in gross earnings in all, again but one and interestingly, profit margin decline and increase in equal number.
The loner with increased loan loss provision was Standard Chartered bank (SCB) which increased it bad debt provision by 6.04%. However, not only is not comparable to growths recorded by Nigerian banks in recent times, it was in fact in lieu of 6.46% increase in its loans and advances when compared to first quarter of 2016.
Of the six banks, though, only Equity bank reported 4.77% drop in loans and advances, all else reported increases with KCB's 14.3% topping the bill followed by Barclays' 10.7%. Yet all of them except SCB provided for less loan loss. Top loan loss provision drop was NIC bank's 33.4% which was accompanied by 3.87% rise in loans and advances; followed by KCB's 30% decrease and 28.4% decline in the provision made by Diamond Trust bank (DTB) which accompanied 4.81% growth in loans and advances.
Barclays bank had the least drop in this provision (down 2.91%) while Equity bank reported 13.1% decrease. Decoded: Kenyan banks seem to have less fear of bad debts in 2017.
However, it looks like they are headed for a year of drops in gross earnings in most cases driven by interest income decline. The quarter's top drop in gross earnings was reported by NIC Bank (13.7%) and all else recorded less than half of this %. In perking trail, Barclays reported 5.8% decrease; KCB had 5.07%; Standard chartered reported 2.86% decline while Equity bank's gross earnings eased by 1.64%.
The lone ranger was DTB with 0.96% increase in total income within the quarter when compared to 2016 first quarter. This was driven by 8.25% growth in non-interest income as against only 0.08% rise in interest income.
In the end, three each had higher and lower profit margins within the quarter. Top reported profit margin based on total gross income was Equity group with 38.8% but this was a major drop from 2016 1st quarter's 40.3% principally because the 21.5% growth in non-interest income was not enough to counter the 11% drop in interest income; and only 0.49% decrease in operating expenses resulting in 5.30% drop in profit before tax.
KCB with though lower 33.5% profit margin fared better because it was an increase on previous 32% driven by 20.3% increase in non-interest income which was strong enough to checkmate 12% drop in interest income and 5.03% rise in expenses leading to only 0.34% drop in profit from 5.07% drop in gross earnings.
Barclays bank reported 28.7% margin for the quarter, being double digit, it was still comfortable but was quite a drop from 32.7% previously and this occurred because profit before tax tumbled 17.2% under pressure from 7.78% decrease in non-interest income; 5.04% decline in interest income and only 1.24% decrease in expenses.
Not too far behind was DTB with 27.6% profit margin which was a marked increase previous 26.4% as very marginal 0.12% increase in expenses fell behind the increase in gross earnings for a final 5.63% increase in profit before tax.
The lowest profit margin, 25.8%, was reported by NIC Bank but this was strong increase on 2016 1st quarter's 22.8% essentially as profit of 2.19% was far behind the 13.7% drop in gross earnings.
For most of the banks too, there was no fear for customer deposit growth although only DTB (22.1%) and Equity bank (16.1%) recorded above 10% growth. The least was 1.12% increase reported by SCB.
For three of the banks, if 2016 was anything to go by, first quarter may already have contributed more than its fair share of the year's profit because that was what happened in 2016. In that year, 1st quarter accounted for 29.2% of Equity bank's full year profit; 28% of that of Barclays bank and 27.5% of SCB's full year profit. If this remains the 2017 trend, then do not expect margins too far from the 1st quarter's.
The rational contribution of any quarter to overall should be 25% hence if KCB and NIC's 22.7% 1st quarter contribution in 2016 and DTB's 22.5% should lead to higher % contributions ahead. Of course, any bank management can change the trend by taking measures to shrink cost further and earn more in the rest of the year.
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