Absa Bank’s half-year profit dips on bad loans provision

Absa Bank branch on Mama Ngina street, Nairobi. [File]

Absa Bank’s net profit dropped by almost 90 per cent in the first six months of the year, largely due to a Sh5.4 billion provision for loan defaults by borrowers distressed by the Covid-19 pandemic.

This saw the lender’s profit after tax decline to Sh390 million compared to Sh3.76 billion that it made in the same period last year.

The performance excluded Sh1.7 billion incurred as the lender transitioned from Barclays Bank, which was concluded early in the year. 

Banks have raised their loan loss provisions as borrowers struggle to service their debts owing to the negative impact of the pandemic.

In the first half of 2019, Absa set aside Sh1.6 billion as insurance against possible defaults, but this shot up by more than two times as more borrowers rushed to banks to change the terms of their loans. ?

Absa Bank Kenya Managing Director Jeremy Awori said the high credit risk had made them triple their loan provisions ahead of future uncertainty.

“The world is facing one of the most difficult challenges of our lifetime, one which governments, industries, businesses and societies around the world were not sufficiently prepared for and whose full impact is yet to be understood,” he said in the results announcement yesterday.

“As management, we have taken the decision to increase credit impairment provisions to position ourselves for the uncertain future.”

Mr Awori, however, noted that non-performing loans remained unchanged “an indication that the significant increase in impairment provisions is related to management overlay on performing loans.”

The lender’s total income for the half year grew by three per cent to Sh16.8 billion.

Its total assets, which stood at Sh392 billion, rose 11 per cent year-on-year attributed to growth in customer loans, investments in government securities and other liquid assets.

Net customer loans went up eight per cent to close at Sh202 billion, driven by general lending, trade loans, mortgage and scheme loans that recorded strong growth compared to last year.

Interest income grew two per cent to Sh11.26 billion compared to June 2019, attributed to growth in balance sheet and management of cost of funds.

In the first half of the year, the lender gave up to Sh57 billion loan repayment holidays as it moved to protect livelihoods and businesses affected by Covid-19. 

Awori added that the pandemic would see them give priority to capital and liquidity preservation.

“Our focus in the last few months has been to help our customers manage through the pandemic through various interventions such as loan moratoriums and restructures, fee waivers for digital transaction, capacity building for SMEs and other Force for Good initiatives,” he said.