Kenyan Banks Pile Into Government Securities to Grow Income
(Bloomberg) -- Equity Group Holdings Plc and NCBA Group Plc, Kenya’s second- and the third-biggest banks by assets, plan to return to profit growth in 2021, one by lending to small businesses and the other to the government.
Both banks reported strong growth in full-year income from lending despite borrowers straining to repay loans. NCBA’s net interest income surged 92%, while Equity, which operates in six countries, saw the same metric jump 23%. The lenders increased provisions for bad loans threefold and fivefold respectively, which drove full-year earnings for 2020 lower.
Equity investment into government securities climbed 26% to 217.4 billion shillings, while NCBA’s rose 15%.
“With a cash war chest of half a trillion shillings in liquid assets, we believe 2021 is the year to deploy that cash, get it sweating to create value,” Equity’s Chief Executive Officer James Mwangi said in a briefing in the capital, Nairobi.
Equity posted a 12% drop in annual profit, the second since it became a fully fledged commercial lender in 2004, according to data compiled by Bloomberg. Unlike other lenders including KCB Group Plc and Co-operative Bank of Kenya Plc, Equity eschewed paying a dividend for a second year in a row, saying it was required to hold more capital after its deposits jumped by 53%.
“The dividend freeze potentially indicates the bank is expecting to maintain robust growth in loans in 2021 and the bank continues to remain concerned about underlying asset quality, especially given the recent tightening of lockdown measures,” according to Ronak Gadhia, director of sub-Saharan Africa banks at EFG Hermes Frontier.
NCBA, which proposes to distribute 1.50 shillings per share, saw a 42% plunge in annual profit. To grow income, it plans to increase lending to the state following a 15% jump in such loans last year, according to Chief Executive Officer John Gachora.
“We will be growing that number,” he said Monday in an interview. “There is still not strong uptake from a loans perspective and the other option where we put our money is government paper.”
Provisions will continue to climb in 2021, but not by levels similar to the previous year’s, Gachora said. “Most of the really affected customers have already gone through the recognition that they are probably going to be non-performing.”
NCBA shares jumped as much as 12.8% to 26.05 shilling in Nairobi, while Equity plunged almost 10%, the biggest drop in four-and-a-half years.
Equity Group FY Net Income KES19.8B Vs. KES22.4B Y/y
NCBA Group FY Net Income KES4.57B Vs. KES7.84B Y/y
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