Barclays Bank of Kenya has today reported a profit before tax of Kshs.10.4 billion for the year ended 31 December 2017, in a period characterised by political uncertainties due to the prolonged electioneering process, stressed disposable incomes as well as reduced private sector growth arising from the impact of interest rate capping.
Performance highlights:
- Customer deposits grew by 4% to Kshs.186 billion
- Customer loans and advances remained relatively flat at Kshs168 billion
- Investment in government securities increased by 20% to Kshs 58 billion
- Impairment registered a 21% drop from Kshs.3.9 billion to Kshs.3.1 billion
- Capital adequacy ratio remained solid at 18% against a regulatory limit of 14.5%
- Liquidity ratio of 33.4% against the regulatory minimum of 20%
During the period under review, customer deposits grew by 4% to Kshs.186 billion with significant contribution coming from transactional accounts following the launch of new products such as the Twin Account and the Zidisha reward product. Transactional account balances accounted for 68% of the deposits. Correspondingly, the average cost of funds dropped to 2.6% (3.0% in 2016).
The bank posted a flat growth in customer loans to close at Kshs.168 billion due to the effects of the Banking Amendment Act which caps interest rates and also the long electioneering period. While growth in loans was muted, investment in the Government securities book increased by 20%. At business level, the asset book recorded a flat growth in the retail banking segment while business banking improved by 3%. Key focus products namely Scheme Loans, general lending and Asset Finance recorded strong year on year growth. The corporate bank book recorded a 2% year on year drop attributed to significant repayments from specific names.
“The implementation of the interest rate cap compressed our margins and resulted in a decline on our revenues. Currently, our strategy is to close the income gap by increasing sales volumes in the upper segments, increasing our product penetration in our current client base and increasing our focus on transactional banking deposits,” Barclays Kenya Managing Director, Jeremy Awori, said.
Impairment dropped 21% from Kshs.3.9 billion in 2016 to Kshs.3.1 billion in 2017 largely attributed to concerted efforts to attain the highest level of underwriting standards as well as enhanced internal efficiencies on the collections and recoveries fronts. The bank‟s average loan loss ratio stood at 1.8% and coverage ratio improved to 70% (68% in 2016) while the statutory provisions remained nil; an indication of adequate provisioning way above the regulatory guidance.
Net Interest Income performance for the period dropped by 2% to Kshs 21.8 billion as a result of interest rate caps with the retail and business banking businesses receiving the biggest impact. Total yields on interest earning assets declined from 13.8% to 12.2% and net interest margin (NIM) dropping to 9.2% from 9.9% in December 2016.
Non Funded Income dropped by 10% largely driven by changes in accounting treatment and lower mark to market („MTM‟) gains on fixed income trading book. Notwithstanding, within the Non Funded Income stream, the bank posted an impressive 9% growth in foreign exchange earnings.
Other Highlights include:
Costs
The Bank costs stood at Kshs 16.8 billion reflecting a 1% drop year on year despite inflationary adjustments and investments. These costs are inclusive of Kshs 500m incurred to meet the Voluntary Exit Scheme (VES) program. However, the cost to income ratio increased to 55% due to reduced revenues following the impact of interest rate cap and the cost of the voluntary exit scheme.
“To manage costs, we are making sustainable investments in a number of running initiatives designed to create sustainable efficiencies. These initiatives include the automation of our processing centres, investments in alternate channels and the implementation of branch rationalisation programmes,”said Jeremy Awori, Managing Director.
“Our digitization agenda, which is aimed at moving the bulk of transactions to alternate channels such as mobile banking, internet banking and agency banking, is on course with the Non branch transactions stood at 65% up from 45% as at the close of 2016,” he added.
Capital & Liquidity
Barclays Bank‟s capital and liquidity ratios remain strong and resilient; with total capital adequacy ratio at 18.0% and liquidity reserve positions at 33.4% against the regulatory limits of 14.5% and 20% respectively.
“We do not foresee any significant adverse impact on our capital ratios as a result of the implementation of IFRS 9. We have adequate buffers to cushion the Bank from the provision‟s impact,” said Mr.Awori.
