Absa Bank Kenya's fund to guard against loan losses jumped 74.42 per cent to Sh5.1 billion in the six months to June compared to the previous year.
The tier-one lender, which is a unit of South Africa's Absa Bank, joins other leading commercial banks in the country who have ratcheted up credit loss reserves by billions of shillings in response to heightened economic and credit market uncertainty.
"Impairment increased by 74 per cent compared to the same period last year in line with the bank's principles of prudence in risk management given balance sheet growth and tough operating environment," the bank said while releasing the half-year results in Nairobi Tuesday.
"Despite this increase, portfolio quality remains better than the industry.
"In addition, the bank has provided adequate coverage ratio to ensure future credit losses are minimised and better managed."
Absa revealed the rise in the rainy day funds on a day its profit after tax grew by more than a third to Sh8.3 billion.
The lender's growth in provisions came as its gross non-performing loans rose by more than half - or Sh12 billion - to Sh32.1 billion as at June 30.
Absa's jump in earnings was fueled by growth in interest and non-interest income, which cumulatively jumped by Sh6.4 billion to Sh27.3 billion.
"The strong first-half performance gives us confidence that our strategy is delivering the desired results both for our customers and shareholders," said Absa Managing Director Abdi Mohamed during the investor briefing.
Transformation agenda
"With our transformation agenda, we are building a strong foundation upon which we will continue to modernise our business and accelerate our growth in market share."
Kenya's biggest banks have collectively set aside Sh30.9 billion for loan losses in the last six months as concerns about an economic slowdown and higher defaults by businesses and individual borrowers mount.
The share of loan defaults increased to Sh592.6 billion as of May this year, pointing to a cash crunch in the economy that could set up thousands of borrowers for property seizures.
Equity Group, Kenya's largest bank by customer base, increased its provisions by more than Sh3 billion in the first half of this year to Sh7 billion from Sh4 billion a year earlier.
The growth in provisions came as the lender's gross non-performing loans grew by more than half to Sh97.5 billion as of June 30, 2023.
KCB Group, on the other hand, said its profit after tax for the year was greatly impacted by aggressive provisioning on facilities.
Its loan loss provision more than doubled to Sh10.1 billion as its non-performing loans jumped by 4.9 per cent to hit Sh181 billion.
The Group singled out higher loan loss provisions on unnamed foreign currency-denominated credit facilities on account of a challenging operating environment.
"Profitability was under pressure in the first half from increased funding costs on higher market deposit rates, prudent provisioning on legacy credit facilities, and provisions for legacy legal claims at NBK," said KCB Group CEO Paul Russo.
Stanbic Holdings said its credit impairment charges nearly more than doubled in the half-year period to Sh2.4 billion.
I&M Group also said its provisions in the six-month period more than doubled to Sh3.2 billion as its bad loans hit Sh36.6 billion from Sh23.3 billion a year earlier.
The majority of the lenders now believe a turbulent macroeconomic environment characterised by sticky inflation, high interest and the depreciation of the shilling against the dollar justifies the need for caution and prudence in loss provision.
