DTB sounds profit warning over bad loans

Diamond Trust Bank (DTB) has joined the growing list of lenders that have issued a profit warning for the 2020 financial year.

The lender joins Absa and Standard Chartered banks that have issued profit warnings for the year in the wake of growing bad debts and rescheduled loans arising from the effects of the Covid-19 pandemic.

Last month, KCB also announced a 43 per cent drop in profit after tax in the nine months ended September due to increased provisions on bad loans.

In a statement on Wednesday, DTB said the drop in earnings reported this year would be significant compared to last year’s Sh6.7 billion net profit.

“The board of directors wishes to announce that DTB’s earnings for the current financial year are expected to be substantially lower than the earnings reported for the same period in 2019 based on its projected full-year financial forecasts,” said the bank.

“This is primarily due to an increase in impairment provisions in light of the Covid-19 pandemic as well as an increase in restructured and delayed loan repayments as the Covid-19 impact on customers intensified during the year.”

In September this year, DTB reported Sh4 billion profit after tax for the third quarter, a 28 per cent drop compared to Sh5.6 billion made over a similar period in the previous year.

The lender saw overall loan loss provision spike 232 per cent from Sh870 million in 2019 to Sh2.8 billion over a similar period this year.

Interest income fell marginally from Sh14.8 billion as of the end of September last year to Sh14.3 billion this year, with customer deposits falling by Sh759 million over a similar period.

The latest development comes as commercial lenders seek to balance the collection of restructured loans and lending to businesses seeking to recover from the pandemic, particularly in the Small and Micro-Enterprise (SME) sector.

According to the latest Credit Officer Survey from the Central Bank of Kenya (CBK), gross loans in the industry grew by Sh35 billion between June and September this year, mainly on increased lending in personal, household, transport and real estate sectors.

“In the third quarter of 2020, credit standards remained unchanged in seven economic sectors and were tightened in four sectors,” said the CBK in the report.

“The tightening of credit standards in the four sectors is attributed to the effects of the coronavirus Covid-19 pandemic,” added the regulator.

According to the report, close to half of credit officers surveyed expect non-performing loans to get worse in the fourth quarter of this year across all the economic sectors. Among the four Tier One banks, Co-op Bank had the least drop in profitability in the first nine months of 2020, while Absa Bank had the largest.

Absa made a net profit of Sh1.9 billion, which was a drop of 65 per cent compared to Sh5.5 billion that it made in the same period last year.

KCB Bank profits dropped by 43 per cent while Equity Bank’s declined by 14 per cent as the banking sector continued to grapple with a tough business environment that has seen a spike in bad loans.