Resilience even as performance is hit by increased provisions for loan losses and subdued economic activity associated with COVID-19 pandemic. KCB Group Plc. reported a net profit of KShs.19.6 billion for the full year ending December 2020.
This was a 22% decline from the KShs.25.2 billion a year earlier as higher provisions for loan losses and subdued economic activity associated with the COVID-19 pandemic hit business performance.
“The pandemic significantly affected our business across the markets we operate in, with most of them going into some degree of lockdown. The negative impact on the economy drastically reduced our customer’s ability to operate necessitating loan restructures. Signs of recovery were evident at the tail end of the year with increased business activity, and we believe this momentum will carry into 2021,” said the Group CEO & MD Joshua Oigara.
“Despite the challenges, we strengthened our balance sheet to give us room to support our customers and stakeholders through the crisis while ring-fencing the business for future growth. I am proud of our staff who showed great dedication and commitment, enabling us to continue offering banking services at all our touchpoints,” said Mr. Oigara.
The financials released on Wednesday show that total income was up 14% to stand at KShs.96.0 billion, compared with KShs.84.3 billion reported in December 2019.
This was largely driven by funded income which grew by 21% largely as a result of interest from Government securities which increased by 65% compared to the previous year. Non-funded income remained flat to close at KShs. 28.1 billion on the back of income from trading activities and strong foreign exchange earnings. The performance of non-funded income was partially subdued by the waiver on mobile transaction fees.
Cost Management, Loan Provisions & Asset Quality
While the Group maintained a stringent cost management approach to cushion the business, operating expenses (at KShs.43.2 billion) were up 12% mainly due to the full year consolidation of National Bank of Kenya (NBK), a subsidiary acquired at the end of 2019. Excluding NBK, expenses remained flat at KShs. 36.6 billion boosted by cost savings initiatives undertaken in the year.
The operating environment caused a significant increase in credit risks which pushed up the Group’s cost of risk leading to an increase in loan provisions to KShs. 27.1 billion. This deterioration in the economy also had a negative impact non-performing loans (NPLs) book which rose to KShs.96.6 billion up from KShs 63.4billion in 2019, with the NPL ratio rising to 14.7%, mainly due to COVID-19 related downgrades.
Balance Sheet Growth
The Bank inched closer to crossing the KShs.1 trillion balance sheet mark, booking KShs.987.8 billion in assets, a 10% jump from the previous year, contributed by loan book growth, funded by increased customer deposits. Net loans and advances were up 11% to close the period at KShs. 595.3 billion while customer deposits were up12% to KShs. 767.2 billion.
Shareholders’ equity grew 10% from KShs. 129.7 billion to KShs. 142.4 billion on improved profit for the period.
Capital and Dividend Proposal
The Group maintained healthy buffers on its capital ratios over the minimum regulatory requirement. The total capital for the Group stood at KShs 170.3 billion, representing a total capital to risk-weighted assets ratio of 21.6% against a regulatory minimum of 14.5%. The Group’s core capital as a proportion of total risk weighted assets closed the period at 18.2% against the Central Bank of Kenya statutory minimum of 10.5%.
The Board has proposed a final dividend of KShs. 1.00 per share. This proposal seeks to balance income distribution to shareholders while protecting capital for the bank in the current environment.
The pandemic has accelerated an already rapidly shifting operating landscape accentuated by elevated customer expectations, digital disruption, and intensified competition. Looking ahead into the next 9 months, KCB is optimistic of a gradual economic recovery.
“The Covid-19 pandemic has seen the world confront its biggest health crisis in this century, posing one of the most disruptive periods to businesses. As a Bank, we recognize that our actions during this pandemic are essential in keeping our economies across the region going. We have continually incorporated guidelines provided by the Government and adopted a raft of measures to cushion our staff, customers and stakeholders from the effects of the pandemic” said KCB Group Chairman Andrew W. Kairu.
KCB Group recorded several milestones within the year, cementing its market leadership position. The United Nations Green Climate Fund (GCF) accredited KCB
Bank Kenya as an implementation entity for green climate funds for Kenya, enabling the Bank to access debt financing for green projects within the range of US$ 50
Million to US$ 250 Million. The Bank was also ranked top bank in East Africa, top 10 in Africa and number 667 globally in The Banker’s Top 1000 World Banks ranking for 2020, the global rank was an improvement of 40 places from the previous year. In addition, the bank was recognized as the best digital bank and safest bank in Kenya in The Asian Banker Middle East and Africa Regional and Global Finance Awards 2020 respectively.
The Group secured new opportunities to strengthen its international businesses by initiating the planned acquisition of Atlas Mara Limited (ATMA) Group shares in Banque Populaire du Rwanda PLC (BPR) and in African Banking Corporation
Tanzania Limited (ABC Tanzania). This transaction—which will be completed this year— will bolster our market share in these two key countries and grow the contribution of international businesses to the Group.