National Bank profits fall but board bullish on future

National Bank’s net profits for the first quarter ending March fell by a third to Sh334 million as the listed lender shook off the impact of toxic loans.

Last year, the bank reported Sh495 million in net profits in gains that would later in the year be wiped out after reclassification of loans to reflect a better picture of those in default.

The sharp decline in profitability is linked to a four-fold increase in loan loss provisions – the amount banks are required to set aside to cover for defaults. Acting chief executive Wilfred Musau termed the January to March quarter difficult, being the period when the former boss Munir Ahmed was fired on allegations of irregular lending. “Coming from a difficult period in quarter one, we are encouraged by this performance. We remain committed as a bank to achieving ‘tier 1 digital bank’ status by 2017,” said Mr Musau.

Mr Munir was suspended at the end of March following a disagreement with the auditors and the board on the health of the loans granted by the lender. Bank chairman Mohamed Hassan sent Munir, alongside five senior executives, on compulsory leave as the lender was filing its full-year financial results before sanctioning an audit process that uncovered massive irregular loans.

As a result of the surge in non-perfoming loans, the bank’s allowance for customer default rose to about Sh700 million from Sh155 million. The allowance for bad loans is treated as an expense in accounting.

But yesterday, Musau – previously the director in charge of Retail and Premium Banking, said the focus for the lender had shifted to strengthen the risk functions that relate to how loans are granted including the assessment of the prospective borrowers.

Already, the bank was reaping from ‘a strong effort to strengthen the credit risk functions by the board’, which would imply a stricter lending policy to avert the troubles that pushed NBK to a Sh1.15 billion loss for 2015.

NBK’s revenue grew by 15 per cent in the quarter with total operating income at Sh3 billion, compared to Sh2.6 billion earned in a similar period last year.

Net interest income grew by 22 per cent to Sh2.3 billion compared to Sh1.9 billion.

The bank, majority-owned by the National Social Security Fund, is betting on cost-cutting policies to boost profitability.

In the quarter, however, NBK reported a marginal increase in total operating expenses, which rose by four per cent, including a rise in rental expenses following the disposal of several premises that host its branches.

Despite the turmoil, however, the lender was able to collect more customer deposits that rose by Sh14 billion. The bank’s customer deposits grew by Sh14 billion to Sh99.4 billion – translating to 17 per cent growth.