23 March 2021
Performance highlights:

  • Net customer assets up 7% to Kes209 billion
  • Customer deposits grew by 7% to Kes254 billion
  • Total revenue growth at 2% to Kes34.5 billion
  • Pre-provision profit growth at 8% to Kes17.8 billion
  • Normalised profit after tax declined by 23% to Kes6.5 billion
  • Provisions increased by 115% to Kes9.0 billion
  • Kes3.2 billion exceptional item related to spend towards the transition to Absa and restructuring programmes

Absa Bank Kenya PLC has today reported a normalised profit after tax of Kes6.5 billion, a 23% decline mainly driven by COVID19 related provisions compared to a similar period last year. Normalised performance excludes an exceptional cost of Kes3.2 billion which went towards the recently concluded brand transition to Absa and restructuring programmes.

The bank’s performance was significantly impacted by a two-fold growth in impairment as customers struggled to keep up with loan repayments due to the economic effects of Covid-19 and pro-active provisioning for uncertain future.  In line with this, the management took a decisive action to increase provisions in order to best position for future potential credit losses.

During this period, the bank offered loan relief and restructures totalling to over Kes62 billion to customers, equivalent to 30% of its loan portfolio. We also contributed over Kes50 million to the COVID-19 Fund, some of which facilitated provision of 210,000 personal protective equipment (PPEs) to frontline health workers in public hospitals and an additional 20,000 reusable masks to bodaboda riders and others at-risk. A further Kes13 million was invested through colleague-led initiatives in the fight against the pandemic. In order to alleviate the psychological challenges that those who were directly or indirectly affected, we partnered with our wellness partner Minet Kenya, to provide the necessary psychosocial support.

Speaking during the release of the bank’s full year results, Absa Kenya Managing Director Jeremy Awori noted that governments, businesses, societies and individuals continue to grapple with one of the most difficult challenges of our time. One whose full impact is yet to be understood and therefore, as management, we took the decision to increase credit impairment provisions by two-fold to position ourselves for the future. “2020 was a tough year and as is expected, the hardships of the banking sector have continued to follow those of the customers and the broader economy. As a result, many sectors have slowed down and peoples’ livelihoods have been greatly disrupted,” said Mr. Awori.

“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 year has been to help our customers manage through the pandemic and we cushioned them through various interventions such as loan moratoriums and restructures, fee waivers for digital transactions, capacity building for SMEs and other Force for Good initiatives,” Mr. Awori added.

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 2% to Kes34.5 billion mainly driven by the growth of non-interest income, which was up 5% year on year. Normalised costs were well maintained, dropping by 4% year on year. Net customer loans went up 7% to close at Kshs.209 billion driven by key focus products namely; general lending, trade loans, mortgage and scheme loans which recorded strong growth year on year.

Interest income grew by 1% from the prior year largely because of growth in the lending book; though partially offset by margin compression as a result of drops in Central Bank Rate (CBR), whose benefits the bank passed to customers as a responsible lender.

Customer deposits grew by 7% to Kes254 billion with transactional accounts making up to 69% of the total deposits.

Other Highlights include:

Normalised costs
The bank’s costs were well managed at Kes16.6 billion reflecting a 4% reduction year on year largely attributed to cost saving initiatives which included automation of processes and continued migration of customer transactions to digital channels. The savings derived were used to fund sustainable investments especially in automation and digitisation to support our customer obsession agenda.

Update on the transition to Absa
Our transition to Absa was 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.

Normalised financials
To ensure that the financial performance is comparable and to report the progress on the underlying business, Kes3.2 billion has been reported as an exceptional item relating to the cost incurred in the transition project and the recently concluded restructuring programme. This amount was invested in enhancement of technology systems, rebranding as well as marketing and communication efforts to engage various stakeholders.

Adjusting this number, the normalised profit after tax is Kes6.5 billion; a 23% drop from the previous year. The bank will use the normalised profit in making its decision and therefore exclude the impact of the one-off costs.

Impairment increased by two-fold compared to a similar period reflecting forecast deterioration in macro-economic variables and a few client names. The bank has applied a prudent approach in provisioning for the COVID-19 impact on our customers by taking up an additional Kes5 billion impairment. Most of this impairment is for our performing loans which means that we have cushioned ourselves for the future. If the economy improves, releases of some of the provisions will benefit our future profits. The bank’s average loan loss ratio increased to 4.3% (2.2% in December 2019).

Capital & Liquidity
Absa Bank Kenya Plc capital and liquidity ratios remain strong with sufficient headroom above the regulatory requirement. The bank capital adequacy ratio is at 17.5% and liquidity reserve position at 38.7% against the regulatory limits of 14.5% and 20% respectively.

The level of uncertainty relating to the COVID-19 pandemic remains high and unprecedented, and its impact on markets and the global economy is already profound. We recognise that 2021 presents a positive outlook especially with the on-going vaccination against the virus. However, the economy is still reeling from the effect of COVID19 and it’s yet to recover fully. We anticipate write-backs of provisions we made as the economy recovers.

Our capital and liquidity levels are solid to navigate the coming quarters and we are seeing opportunities for growth in our balance sheet with recovery in revenue growth and profits expected in 2021.

The bank will continue with its key agenda of digital transformation in order to grow and improve our customer experience.