Banks have posted the lowest 11-month pre-tax earnings for the banking sector since 2012. The low profits were attributed to the massive disruption of Covid-19 to the industry recording high profits.
A report by The Central Bank of Kenya (CBK) shows that the pre-tax earnings in the period ended November 2020 declined by 28.2% to Kes 107.7 billion from Kes 150.1 billion posted during the same period in 2019.
The decline in profits has come due to Covid-19 disruptions resulting in many people losing jobs and others receiving pay cuts. As a result, banks recorded increased loan defaults and applications for extension in the repayment period. The Kenyan government and banks also took action to cushion debtors by suspending CRB listing for defaulted loans.
Lenders were also urged to give reliefs on personal loans and SMEs loans. On 19 March 2020, the Kenya Bankers Association announced that reliefs on loans would be granted to borrowers affected by COVID-19 if their repayments were up to date as at 2 March 2020. Banks also issued extensions for reimbursements and other restructuring arrangements to these borrowers.
The slowed economic activities resulted in increased debt defaults. CBK data showed that the value of loans defaulted hit kes 423 billion or 14.1 % of the total kes 3 trillion loans taken by December, representing a sharp rise from kes 351.73 billion that was in default by the end of March.
The defaults have seen the non-performing loans (NPLs) ratio rise to 14.1%—the highest since August 2007. The mounting NPLs is despite banks having allowed customers to extend repayment periods on loans worth kes 1.63 trillion by the end of December, an equivalent of 54.2% of total loans taken.
Standard Chartered Bank Kenya, Absa Kenya, Cooperative Bank of Kenya, Diamond Trust Bank, I&M Holdings and NCBA Bank have all issued profit warnings, signalling they expect more than a 25 % decline in full-year net earnings.