- Total assets up 11% to KES392 billion
- Customer deposits grew by 8% to KES249 billion
- Customer Loans and advances up 8% to KES202 billion
- Total revenue growth at 3% to KES16.8 billion
- Pre-provision profit growth at 9.2% to KES8.6billion
- Normalised Profit After Tax declined at KES1.2billion
- Provisions increased by 228% to KES5.4 billion
- KES1.7 billion exceptional item related to spend towards the transition to Absa
- KES57 billion in repayment holidays, equivalent to 28% of customer loans and advances
Absa Bank Kenya PLC has today reported half-year Normalised profit after tax of KES 1.2 billion, a 72% decline compared to a similar period last year. Normalised performance excludes an exceptional item of KES1.7billion which the bank incurred as part of the just concluded separation project and brand transition to Absa.
Performance was significantly impacted by a 228% growth in impairment largely caused by increased provisions as customers struggled to keep up with loan repayments due to the economic effects of the Covid-19 pandemic. In light of the higher credit risk, management took a decisive action to increase provisions three-fold in order to position for future potential deterioration in the macro-economic environment.
However, the Non-Performing loans remained broadly unchanged, an indication that the significant increase in impairment provisions is related to management overlay on performing loans.
In the period, the bank offered loan relief and restructures totalling KES57 billion to customers, equivalent to 28% of net customer loans and advances, alongside other response interventions such as provision of Personal Protective Equipment (PPE) to public hospitals and psychosocial support for frontline health workers.
“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. As management, we have taken the decision to increase credit impairment provisions to position ourselves for the uncertain future. The fortunes of the banking sector follow those of its customers and the broader economy and therefore 2020 will be a tough year for the sector. We believe we must help protect lives and livelihoods and that is why we have extended loan repayment holidays of up to KES57billion in the first half.
“The evolving impact of the pandemic has required us to re-visit our strategic priorities and it is clear that greater priority must be given 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,” said Jeremy Awori, Managing Director, Absa Bank Kenya PLC.
Despite the raging effects of the pandemic, all business units remained profitable and resilient, registering growth on key lines, with Business Banking and Global Markets divisions revenue growing in double digits.
Total income grew by 3% to KES16.8 billion mainly driven by the growth of non- interest income, which was up 4% year on year. Costs were well maintained, dropping by 3% year on year. Total assets grew by 11% year on year driven by growth in customer loans, investments in Government securities as well as other liquid assets.
Net Customer loans was up 8% to close at KES202 billion driven by key focus products namely General lending, trade loans, mortgage and scheme loans that recorded strong growth year on year.
Interest income grew 2% from prior year largely because of growth in balance sheet and success in management of cost of funds. This was however impacted by margin compression with the downward revision of the Central Bank Rate (CBR) whose benefits the bank passed to customers as a responsible lender.
Customer deposits grew by 8% to KES249 billion with transactional accounts making up 67% of the total.
Other Highlights include:
The Bank costs were well managed at KES8.2billion reflecting a 3% reduction year on year largely because of spend discipline and cost saves initiatives. The cost saves initiatives included automation of the processing centre and continued migration of customer transactions to alternative channels. The savings derived were used to fund sustainable investments especially in automation and digitization.
2. Update on the transition to Absa
The transition to Absa has been successfully completed on time and on budget, having migrated all our technology systems and rebranded all business assets to Absa. The bank will continue upgrading to more advanced systems which will ultimately help enhance the service experience.
3. Normalised financials
To ensure the financial performance is comparable and to report the progress on the underlying business, KES1.7billion has been reported as an exceptional item relating to the cost incurred in the transition project. This amount was invested towards enhancement of technology systems, rebranding as well as marketing and communication efforts to engage various stakeholders.
The normalized performance excludes this amount. The bank will use the normalised profit in making its decision on dividend and therefore exclude the impact of the one off costs for separation.
Impairment increased by 228% compared to similar period reflecting forecast deterioration in macroeconomic variables and a few client names. The Bank’s average loan loss ratio increased to 5.4% (1.8% in June 2019) and Net NPL ratio increased to 2.8% from 2.3% in H1 2019. This is lower than the observed industry average a demonstration of the quality of our assets.
5. Capital & Liquidity
Absa Bank Kenya Plc capital and liquidity ratios remain strong with sufficient headroom above the regulatory requirement; total capital adequacy ratio at 16.7% and liquidity reserve position at 39.1% against the regulatory limits of 14.5% and 20% respectively.
The level of uncertainty relating to the COVID-19 pandemic is high and unprecedented, and its impact on markets and the global economy is already profound. We recognise that 2020 will be a far more challenging year than we could have thought as the pandemic continues to have negative impact on global and local businesses. Banks are no exception and have also been impacted.
In line with this, we expect an impact on revenue growth across the industry on the back of reduced business activity. With the proactive actions that we have taken in the first half to improve balance sheet resilience, we expect a more predictable second half.
The bank will continue with its key agenda of product and process innovation in order to deliver excellent customer experience.
For more information, please contact:
Charles Wokabi - Charles.Wokabi@absa.africa