KCB Group Profit Falls to Sh15B on Higher Costs

KCB Group reported a 20% drop in net profit for the six months ended June, owing to staff reorganization charges and a near tripling of loan default provisioning.

Net profit fell to Sh15.5 billion from Sh19.5 billion in the previous comparable quarter as provisions eclipsed gains from the core company, where sales increased by 22.2 percent to Sh73.1 billion.

In the same period, KCB’s operational expenses climbed by 60% to Sh50.61 billion, while provisioning for non-performing loans (NPLs) increased by 2.4 times to Sh10.2 billion from Sh4.32 billion.

The increase in NPL provisions, together with a 24 percent increase in employee costs to Sh17.5 billion and a 79.8 percent increase in other operating expenditures to Sh17.1 billion, contributed to the increase in operational costs.

According to KCB CEO Paul Russo, net profit was hurt by aggressive loan provisioning in KCB Kenya, inherited litigation claims in the National Bank of Kenya (NBK), and employee restructuring costs spent in the two units to right-size the company.

“Profitability was under pressure in the first half from increased funding costs on higher market deposit rates, prudent provisioning on legacy credit facilities, and provisions for legacy legal claims at NBK,” said Mr Russo.

“Looking ahead, noting the actions we have taken and with significantly improved liquidity, business focus is on accelerated performance in the second half of the year while supporting the distressed customers.”

KCB’s net interest revenue increased 12.1 percent to Sh45.5 billion, while its loan book increased 32.3 percent to Sh964 billion.

Non-interest income increased 30.3 percent to Sh27.56 billion, contributing to the overall revenue increase.

The KCB group improved its NPL ratio to 17.4 percent from 21.5 percent in the half-year ended June last year, pointing to the success of a special committee appointed by Mr Russo to handle loan defaults.

Tanzania, South Sudan, Rwanda, Uganda, Burundi, and the Democratic Republic of the Congo contributed Sh8.5 billion in pre-tax profit during the review period, accounting for 37.8 percent of the group’s Sh22.46 billion in gross earnings.

KCB’s total assets increased 54 percent to Sh1.84 trillion, owing to the consolidation of Trust Merchant Bank (TMB) acquired last December, putting it ahead of Equity Group, which had Sh1.64 trillion in assets at the end of June.

Equity, which increased its half-year net profit by 7.2 percent to Sh25.4 billion, maintained its profitability lead over KCB.

Following the TMB purchase, KCB’s client deposits increased by 62 percent to Sh1.47 trillion, putting it ahead of Equity, which had Sh1.17 trillion in deposits at the end of the review period.

“The Group is well positioned for future growth, riding on its solid governance structures and digital capabilities, strong regional presence and committed staff to support customers and other stakeholders,” said Joseph Kinyua, KCB Group chairman.