National Bank of Kenya profit hit by loan income drop

Wilfred Musau - Acting Managing Director & CEO National Bank of Kenya

National Bank of Kenya (NBK) has recorded a 42 per cent dip in half-year profit to Sh179.8 million as interest income fell by more than a third.

In a similar period last year, the bank booked a profit of Sh311 million as it made net interest income of Sh4.4 billion.

The latest results, the first from the 40 banks expected to release performance for the six months ended June 30, show that net interest income dropped by 35.5 per cent to Sh2.87 billion.

The drop, attributed to the capping of interest rates that reduced banks’ premium on loans, was accompanied by interest income from loans and advances to customers dropping by Sh3 billion, or 55 per cent, to Sh2.45 billion.

Huge deposits

However, Managing Director Wilfred Musau said the lender’s outlook was bright and he expected increase in profitability and growth in the second half of the year.

Interest income from Government bonds, Treasury bills and notes grew by 40 per cent to Sh2 billion. Most Tier One banks have used their huge deposits to bet on Government securities since they see repayment as guaranteed.

NBK’s loan book shrank by Sh7.8 billion from Sh64.8 billion to Sh57 billion. This was despite customer deposits growing by Sh3.2 billion to Sh98.8 billion.

Gross non-performing loans stood at Sh29.4 billion, up by 7.7 per cent compared to June 2016.

Generally, banks have slowed lending to the private sector with the cap on pricing the credit having denied them a free hand in calculating risk.
Shareholders will only be banking on capital returns from NBK’s share, which is up 42.4 per cent since January. The directors have not recommended any interim dividend in light of the performance.

The bank, though, has reduced its loan loss provision by more than six times to Sh235 million. This has helped it cut operating expenses by 29 per cent to Sh3.8 billion.

Interest paid by NBK for holding customers’ deposits dropped by Sh701 million despite the deposits growing by 3.3 per cent. This reflects that part of the money may be demand deposits and, therefore, not costing it any interest.

Despite having started job cuts in January, staff costs went up by 98 million, partly due to retrenchment costs. In June last year, the bank reported Sh1.78 billion as staff costs but that has risen to Sh1.88 billion in the latest filings.

The bank continues to fall short in total capital to total risk weighted assets ratio. Against a minimum statutory ratio of 14.5 per cent, it missed by 2.7 percentage points.

Last month, National Social Security Fund, which owns 48.05 per cent stake in NBK, pumped in Sh3 billion even as news that Kenya Commercial Bank was eying to buy its rival emerged.

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