Provision for bad loans pulls back banks' profits

NIC Bank recorded a five per cent dip in net earnings after setting aside Sh3.1 billion for NPLs. The bank reported a Sh3.4 billion after-tax profit for the period ending September 30, 2016 compared to Sh3.6 billion last year. PHOTO: COURTESY

A regulatory directive to classify loans correctly forced banks to set aside money for Non-Performing Loans (NPL), resulting in lower profits in the third quarter.

NIC Bank recorded a five per cent dip in net earnings after setting aside Sh3.1 billion for NPLs. The bank reported a Sh3.4 billion after-tax profit for the period ending September 30, 2016 compared to Sh3.6 billion last year.

"In the period under review, the group's net profit was weighed down by a significant increase in provisions to support the non-performing facilities of a few large corporate customers that have been previously reported," said the lender in a statement.

In September, NIC was given a negative outlook by South African credit rating agency, Global Credit Rating for its surge in bad loans.

Barclays Bank of Kenya on its part posted Sh6 billion in profit, down from Sh6.4 billion after bad debts rose to Sh10.4 billion, prompting it to set aside Sh4.5 billion as provisioning. Bad loans stood at Sh6.9 billion a year ago.

Housing Finance Group, which posted a jump in profit, was more conservative with provisioning for bad loans that jumped by 36 per cent to Sh5.5 billion from Sh4 billion.

Despite gross NPLs increasing, the firm has only increased its loan loss provision by 16.5 per cent to Sh495 million.

Housing Finance Group's net profit grew 7.8 per cent to Sh837.7 million in the first nine months to September this year.

I&M bank, which recorded a net profit of Sh5.12 billion, also saw a slower increase in loan loss provisions from Sh598 million to Sh921.6 million against the bank's gross NPLs that surged by 64.5 per cent to Sh6.23 billion.

The past two years have seen Central Bank of Kenya (CBK) insist that loans are properly classified and sufficient resources provided for bad ones, pushing the level of NPLs to record highs.

Kenyan banks' non-performing loans rose to eight per cent of the total in March from 5.7 per cent in the same period last year.