KCB Group delivers big profit but warns of headwinds

KCB Group (KCB), Kenya’s largest bank by asset, reported its financial results for the first quarter of 2020 on May 21. The bank made a profit of Ksh6.3 billion in the quarter, rising from Ksh5.8 billion in the first quarter of 2019.

The profit jumped on account of strong performance in the bank’s lending business. Banks typically make most of their money from charging interest on loans provided to customers. KCB lends to consumers, businesses and government entities. Its interest revenue increased 18% to Ksh15 billion in the first quarter.

KCB sees drop in loan demand as customers struggle to repay their loans

KCB has warned of tough times ahead because of the coronavirus outbreak. The bank’s CEO Joshua Oigara said that existing borrowers were struggling to repay their loans as they grapple with the coronavirus fallout.

The virus outbreak has slowed down economic activity across the country, with the lockdowns and curfew hitting businesses particularly hard. Hotels have closed and airlines have cut flights as the number of travellers has dropped.

Many other businesses have shut or greatly scaled back their operations in response to the virus outbreak. In this condition, businesses have seen their sales drop and households have seen their incomes shrink, resulting in the struggle to service bank loans.

In addition to borrowers struggling to repay their loans, KCB has also seen a drop in demand for new loans, threatening its future profits. Consequently, the bank expects the pandemic to hit its profits for the next two quarters. To mitigate the impact of the pandemic on its business, KCB is slowing down capital investments and tightening cost controls.

KCB restructures 20% of its loan volume to cushion customers

To support its customers in this pandemic, KCB has agreed to change the repayment terms for Ksh115.1 billion in loans, about 20% of its $553.9 billion total loan volume in the first quarter. The changes, which include extending the loan repayment period, are designed to provide relief to borrowers during this pandemic.

Finally, KCB shares closed Friday at Ksh36.30. The shares have declined 32.8% since the beginning of the year.