StanChart opts for less risky lending to the government

StanChart’s chief executive Lamin Manjang: The bank continues to focus on disciplined balance sheet management. PHOTO | FILE

What you need to know:

  • StanChart reported a profit of Sh5.2 billion in the six months ended June, up from Sh3.8 billion in a similar period last year.
  • The bank opted to lend to the government increasing its basket of Treasury bills and bonds to Sh85.4 billion from Sh62.6 billion in June last year. 

Standard Chartered Bank Kenya turned to buying government securities as it cut back on risky ordinary lending even as its half-year net profit grew 34 per cent.

The bank reported a profit of Sh5.2 billion in the six months ended June, up from Sh3.8 billion in a similar period last year.

StanChart management has recommended an interim dividend of Sh6 per share following the profit growth.

The lender’s loan book shrunk seven per cent to Sh114 billion from Sh123 billion over the same period, underlining its cautionary approach after its bad loans shot up 84 per cent to Sh15.3 billion.

“Customer loans and advances were marginally down as the bank continues to focus on disciplined balance sheet management and more selective asset origination,” said StanChart’s chief executive Lamin Manjang.

StanChart opted to lend to the government increasing its basket of Treasury bills and bonds to Sh85.4 billion from Sh62.6 billion in June last year.  The bank bought bonds and bills worth Sh16.8 billion in the three months to June.

Interest earned from the government increased by Sh1.6 billion to Sh4.7 billion being a 51.6 per cent increase compared to an 8.4 per cent growth in interest income from loans to Sh7.7 billion.

Its deposit base expanded to Sh190 billion from Sh163 billion, resulting to a 68.7 per cent increase in interest paid to customers to Sh2.7 billion.

StanChart’s liquidity ratio is one of the highest in the industry at 61.9 per cent against the statutory 20 per cent, with the lender opting to hold cash and treasuries rather than lend.

The bank is currently conducting its annual grand sale promotion where it reduces interest rates and rewards new borrowers.

It has also increased the maximum amount that top earners can borrow without security to Sh7 million as it seeks to grow its loan book on high net worth individuals.

Non-performing loans have been a major headache in the banking sector rising to a decade high Sh172 billion, or 8.4 per cent of the industry loan book.

The rise in bad loans has been attributed to high interest rates and delayed payments to contractors by the government.

The bank had been forced to issue a profit warning last year following a slump in profitability to hike in provisions for bad loans.

Its share price at the Nairobi Securities Exchange took a hit following the profit warning declining by more than 25 per cent. It has rebounded in the last three months gaining 6.7 per cent to trade at Sh208 per unit following improved performance in the first quarter.

Kenya’s banking sector is currently undergoing a hard time with the collapse of three lenders in the last twelve months and with a possible capping of interest rates which has seen investors’ appetite of their counters wane.

Collapse of Dubai Bank, Imperial and Chase Bank has created a confidence crisis in the banking sector which has however seen depositors seek safety in large banks among them StanChart.