Absa Bank Kenya reported a 13.8 percent decline in net profit in the first quarter ended March as falling interest rates and reduced lending to customers resulted in reduced interest income.
The bank’s net income in the review period stood at Sh5.3 billion, down from Sh6.1 billion the year before.
Total interest income fell 10.1 percent to Sh13.5 billion. The lender also slashed interest paid on deposits by 17 percent to Sh3.1 billion, helping to mitigate the impact of lower interest income on its lending margins.
“While market conditions remained dynamic, we delivered a profit after tax of Sh5.3 billion and a return on equity of 20.3 percent,” Absa said in a statement.
“Revenue [Total operating income] closed at Sh14.7 billion, reflecting the impact of the lower-rate environment, partly offset by improved cost-of-funds management.”
Absa becomes the second major listed lender to report lower earnings after Standard Chartered Bank Kenya’s net income declined 26.3 percent in the same period to Sh3.5 billion on lower interest income.
StanChart’s net interest income fell by 24.4 percent to Sh6.2 billion as revenues from lending fell faster than interest expenses, cutting its lending margins.
Other rival banks including Equity Group, NCBA Group and Co-operative Bank of Kenya have recorded higher earnings on a mix of deeper cuts in interest expenses and higher income from lending and transactions.
Absa’s non-interest income shrank by Sh233.9 million to Sh4.2 billion while operating expenses increased by Sh169.8 million to Sh7.1 billion, contributing to the weaker earnings. The bank paid out Sh717 million to 82 of its employees who took voluntary early retirement in January this year, pushing up its staff costs for the first quarter.
The lender cut its loan loss provision by only Sh8 million to Sh1.4 billion despite the stock of bad loans falling by Sh5.9 billion to Sh38.1 billion, indicating increased cautionary outlook on credit performance in the near future.
Absa cut its loan book by Sh4.5 billion to Sh303.8 billion and increased its investments in the safer government debt securities by Sh22.5 billion to Sh128.4 billion.
“Looking ahead, the bard remains confident in Absa Bank Kenya’s ability to navigate the evolving market dynamics
while continuing to deliver sustainable value,” the lender said.
“Our focus remains on disciplined execution, customer-centric innovation, prudent risk management, and long-term shareholder returns.”
The US and Israel war on Iran has resulted in a sharp jump in the price of commodities led by oil, leading to rising inflation that is set to reduce households’ disposable incomes and hurt profitability of businesses.
The fallout from a surge in inflation will be larger if the war persists for longer. Most sectors of the economy have been impacted by the commodities price rally including agriculture, transport, manufacturing, trade and energy.
