Family Bank net profit down 40 per cent as bad loans bite

Family Bank MD David Thuku (right) chats with Central Bank Governor Patrick Njoroge at a recent event. Net earnings for the second-tier lender Family Bank have dropped by 40 per cent to Sh711.5 million. (PHOTO: COURTESY)

Net earnings for the second-tier lender Family Bank have dropped by 40 per cent to Sh711.5 million.

The results covering six months to June 30, 2016 show that despite its total interest income rising by 34 per cent to Sh6 billion, the lender’s profits were condemned by provision for loan losses that increased more than eight times.

This decision, which saw provision for bad debts hit Sh299.3 million, pushed up the lender’s operating expenses by 30 per cent to Sh3.8 billion when compared to its expenses in the previous half year.

Profit before tax and exceptional items was Sh1.07 billion, being down by over half a million when compared to a similar six-month period ended June 30, 2015. Further disclosures in the bank’s books show that gross non-performing loans (NPLs) and advances as at June 30 was Sh5.16 billion. This is 88 per cent higher compared to the Sh2.75 billion it had in the half-year period last year.

On quarter to quarter, the lender has added Sh1.65 billion in its books as gross NPLs, leaving it with net NPLs exposure of Sh16.5 million.

Borrowed funds

Insider loans and advances rose by Sh3.85 billion to Sh4.14 billion in a period that saw directors, shareholders and associates borrow over Sh900 million in three months to end of June.

The reduced profitability coupled with increase in liabilities cut the bank’s liquidity ratio- a measure of current assets to current liabilities- to 24.7 per cent, down from 37 per cent in June last year.

The group’s liabilities rose by seven per cent to Sh68.1 billion. This was partially as a result of increased borrowing. Its statement of comprehensive income show that borrowed funds rose more than four times to Sh11.1 billion.

Total assets of the group have grown marginally (7 per cent) to Sh80.2 billion. This was supported by tax recovery of Sh177.3 million. Investment properties, which refer to real estate property that has been purchased with the intention of earning a return, shrunk seven times to Sh18.2 million.

Customer deposits in the bank also dropped by Sh4.23 billion. Quarter-on-quarter performance shows in the three-month period to June, customer deposits shrunk by Sh7.9 billion to stand at Sh54.8 billion. However, during the six-month period, shareholders’ funds reached Sh12.15 billion, translating to a growth of 8.2 per cent.

Against this reduced profitability, the board of directors failed to declare any interim dividend, instead choosing to push up retained earnings by Sh838 million. In December, the lender declared a dividend of Sh0.50 for the full year results that saw it post a profit of Sh1.98 billion.