Absa Bank profit up despite rise in bad loans

 

Absa Bank defied an increase in the number of bad loans to post a net profit of Sh4.5 billion in the three months to March 2023.

This was a 51 percent profit rise compared to the first quarter of 2022.

Inflationary pressures and the tightening of monetary policies by the Central Bank of Kenya (CBK) in a bid to tame the shilling from falling further saw the loans become expensive leading to a rise in defaults.

This saw Absa raise the cover for bad loans as the bank’s gross non-performing loans soared by 59.7 percent to Sh31.1 billion from Sh19.5 billion previously.

The banking sector has witnessed increased default in the first quarter according to industry figures from the lenders that have so far released their quarter one financials.

Cooperative Bank recorded a rise in gross non-performing loans to Sh55.6 billion, KCB saw its loan loss provision rise by 98 percent to Sh. 4.1 billion and I&M also tripling it's loan-loss provision to Sh1.6 billion.

Despite a two-fold increase in Absa's loan-loss provisions charges to Sh2.4 billion from Sh1.2 billion at the same time last year, the bank managed to keep costs growth below income growth at Sh7.4 billion over the three-month period.

Customer deposits increased by 15 percent to Sh311 billion, further supporting balance sheet expansion.

The bank's revenue increased by 40 percent to Sh13.9 billion, with net interest income increasing by 36 percent to Sh9.4 billion.

Absa Bank Kenya PLC Managing Director, Abdi Mohamed said diversification and multi-year transformative investments are yielding the desired results, with non-funded income growing by 49 percent to Sh4.5 billion.

“We are pleased with this impressive financial performance which was delivered against a challenging business environment,” said Mohamed.

In an effort to tame the rising number of bad loans the bank has previously stated that it expects to implement the credit scoring measure on loans in the second half of 2023.

The follows CBK's nod clearing the bank to adopt risk-based lending.

The bank’s says capital and liquidity ratios remain strong with sufficient headroom above the regulatory requirement.

The bank's total capital adequacy ratio closed the quarter at 18.1 percent and liquidity reserve position at 28.6percent against the regulatory limits of 14.5 and 20 percent respectively.

“Our capital position remains strong, allowing us to support our customers while responding appropriately to the external environment,” added Mohamed.

Loans and advances increased by 28 percent to Sh310 billion with majority of this lending advanced to sectors driving economic growth and transformation, particularly Small and Medium Enterprises (SMEs).

The bank’s statutory operating expenses rose by 14 percent as it continued to execute its ‘transformational’ and people investments.

“The bank has leveraged on these investments to accelerate revenue growth which has led to significant improvement in cost to income ratio to 36 percent from 45 percent compared to the same period last year,” the lender noted.

Additionally, new businesses have continued to diversify the Bank’s revenue, with Absa Asset Management recording a 207 percent revenue increase, Stock brokerage revenue increasing by 64 percent, and Bancassurance revenue increasing by 42 percent year on year.

Impairment charges on the other hand increased by 103 percent compared to the same period last year.

“This is in line with our principles of prudence in risk management given balance sheet growth and tough operating environment. Despite this increase, our portfolio quality remains better than the industry. In addition, we have ensured adequate coverage ratio which is also better than the industry levels to ensure future credit losses are minimised and better managed,” noted Mohamed.    BY THE STAR