Barclays profit dips 12 per cent as bad loans surge to Sh11.4 billion

Barclays Bank of Kenya has reported a 12 per cent dip in net profit to Sh7.3 billion in the year ended December driven by a massive rise in non-performing loans.

The lender, which is the first to announce its 2016 full year results, saw its loan loss provision rise 2.2 times to Sh3.9 billion as the stock of non-performing loans more than doubled to Sh11.4 billion.

Barclays maintained its final dividend payout of Sh0.8 per share, having paid an interim dividend of Sh0.2 earlier for the half year.

The lender said it reported significantly higher defaults after an early adoption of the more conservative accounting model (IFRS9) — which is expected to be adopted across the banking industry by 2018.

“During the period under review, impairment grew due to a turbulent macro-economic environment which caused heightened job losses resulting in higher than usual default rates especially in unsecured personal loans,” Barclays said in a statement.

“The growth in impairment was also driven by the early adoption of some aspects of the more conservative global accounting model referred to as International Financial Reporting Standard (IFRS)9.”

Besides defaults, Barclays says it took a hit from the capping of lending rates in September. “The performance was, however, impacted by an increase in impairment as well as the implementation of the Banking Amendment Act,” said the lender.

The Banking (Amendment) Act 2016 currently caps lending rates at four percentage points above the Central Bank Rate (currently 14 per cent) and sets the minimum deposit rate on interest-bearing accounts at a minimum of 70 per cent of the CBR (currently seven per cent).

Analysts at Renaissance Capital say the new accounting standard will lead to higher provisioning of bad debts going forward, hurting the bottom-line of lenders who have seen defaults across multiple sectors despite robust gross domestic product growth.

“The level of provisioning being made by the Kenyan banks has always been a source of concern for many investors, and we expect that the adoption of this standard will eventually lead to higher provisions and coverage levels across the sector,” Renaissance said in a research note.

The loan loss provision was the major driver of operating expenses, which increased 19.8 per cent to Sh20.8 billion.

Barclays’ loan book expanded 16 per cent to Sh168.5 billion, helping to push interest income up 11.2 per cent to Sh28.1 billion.

Interest expenses jumped 18.7 per cent, partly reflecting an eight per cent growth in customer deposits to Sh178.1 billion. Barclays says only 32 per cent of its deposits earned interest in the review period.

The lender said its net interest income rose nine per cent to Sh22.3 billion, trailing the loan book growth as the effect of the capping of interest rates started to be felt.

Barclays says its net interest margins declined to 9.9 per cent in the review period compared to 10.7 per cent the year before, with other lenders also expected to report a drop in the key ratio.