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StanChart profits weighed down by rise in non-performing loans

By Moses Michira | November 26th 2015

Standard Charted Bank has reported a "disappointing" financial result in the nine months to September on a sharp rise on bad loans, with full year profits now projected to fall by more than a quarter.

Net profits fell by more than 24 per cent over the steep rise in the doubtful loan portfolio and a sharp drop in fees non-funded income, earned from fees and commissions.

Chief executive Lamin Manjang said the bank wrote off Sh391 million worth of loans between June and September, while the quality of the entire loan book took a significant hit.

"Given the foregoing Q4 results of the bank is unlikely to reverse the impact of this and attain results close to or at last year's levels. It is reasonable at this time to anticipate earnings for the year ending December 31, 2015 will be lower than the previous year's by at least 25 per cent," Manjang said in a statement issued late yesterday.

Such a fall in profits requires that the firm listed at the Nairobi Securities Exchange issues a profit warning, according to regulations of the Capital Markets Authority (CMA).

The fall in profitability was also linked to the fact that the lender booked a major one-off gain last year after it disposed of prime property above the prevailing book value.

StanChart now lags behind other banks in the profit growth momentum, with most of its rivals maintaining double-digit rise for over a decade.

Growth in StanChart's customer deposits matched ahead of new loans, increasing eight per cent and three per cent respectively. Non-performing loans now make up Sh10.8 billion or 8.2 per cent of StanChart's loan portfolio, up from Sh8.4 billion in June.

Manjang did not explain the rise in the non-performing loans but other industry players have made similar but more modest adjustments following a sharp rise in lending rates.

Higher commercial rates often lead to more defaults as loans become more expensive to service.
Manjang termed the sharp rise in non-performing loans in the three-month period as "disappointing", considering that the bank had significantly increased recoveries.

"The gains made on recoveries of the NPLs in the first six months have been set back in quarter three, and this is disappointing," said the chief executive, adding that he bank's underlying business momentum was picking up.

StanChart cited the uncertainty around the implementation of Capital Gains Tax introduced in January 2015 had depressed foreign inflows into the Nairobi Securities Exchange impacting its custody business, especially in the first quarter.

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