Barclays Bank’s profit dips 12% on back of bad loans, interest capping law

Barclays Bank’s profit dips 12% on back of bad loans, interest capping law
  • Barclays full profits for the year 2016 dropped by 12% due to provision of bad loans and the new amendment Bill 2016
  • Barclays Bank’s pre-tax profit fell to Sh10.85 billion from Sh12.07 billion a year earlier
  • Provisions for bad debts doubled in 2016 reaching Sh3.92 billion down from Sh1.77 billion recorded the previous year

Barclays Bank of Kenya recorded a 12% dip in profits to Sh7.3 billion for the year ended December 2016 driven by non-performing loans and a new law that capped interest rates at 14.5%.

 “The cap on lending rates, introduced last September, was expected to squeeze margins and profits at Kenyan banks. In general, it has impacted our revenue line in the region of about 15%,” explained Jeremy Awori, the bank’s CEO.

During the period under review, Barclays Bank’s pre-tax profit fell to Sh10.85 billion from Sh12.07 billion a year earlier, hurt by increased provisions for bad debts and the rate cap.

Provisions for bad debts doubled hitting Sh3.92 billion down from Sh1.77 billion recorded the previous year. The lender attributed the sharp rise in non-performing loans to job losses at companies that caused personal borrowers to default on their loans.

The lender upheld its final bonus payout of Sh0.8 per share, having paid an interim dividend of Sh0.2 earlier for the first half of the same year.

During the period under review, Barclays’ loan book expanded 16 per cent to Sh168.5 billion, helping to push interest income up 11.2% to Sh28.1 billion.

Interest expenses jumped 18.7%, partly reflecting an 8% growth in customer deposits to Sh178.1 billion.

Economists had earlier warned of the cap on lending rates, saying it would squeeze margins and profits among Kenyan banks, slowing economic growth by discouraging lending to smaller borrowers who are deemed riskier.

Analysts argue that The Banking Act 2016 cap – which sets the minimum deposit rate on interest-bearing accounts at 70% of the CBR – is encouraging the provision of bad loans thus hurting the bottom-line of lenders.

“The rate at which provision of bad debts is being witnessed across the banking sector has always been a worry for many investors and we expect that the adoption of this standard will eventually lead to higher provision and coverage levels across the sector,” analysts at Renaissance Capital said in a statement.

 

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