Barclays Bank of Kenya Ltd. became the first of the country’s biggest banks to report a drop in nine-month profit as it tripled loan-loss provisions and bad loans surged.
The bank partially owned by Barclays Plc’s Africa unit posted profit of 6.06 billion shillings ($59.5 million) in the nine months through September, compared with 6.4 billion shillings a year ago, according to a statement e-mailed by the Nairobi Securities Exchange. The lender set aside 3.14 billion shillings for bad credit, three times more than the year-earlier period, as non-performing loans jumped 49 percent to 10.4 billion shillings.
Equity Group Holdings Ltd., Kenya’s largest bank by market value, earlier this month announced a 17 percent increase in profit, while KCB Group Ltd., the nation’s biggest lender by assets, posted a 15 percent rise in income for the year-earlier period. Both companies doubled provisions for bad debt. While the two banks saw slower loan growth, Barclays increased customer advances by 14 percent to 158.8 billion shillings.
Lenders in East Africa’s biggest economy have raised loan-loss provisions this year to comply with regulations following increased oversight by the central bank. Bad debts have also increased because of the spill-over effects of the “expensive cost” of financing loans, according to Cytonn Investments, a Nairobi-based investment bank. The government in August introduced caps on commercial lending rates to reduce the cost of credit.
The new limits will erode net interest margins and lead to slower loan-book growth, according to Nairobi-based Standard Investment Bank.
“With the lower margins, need to protect return on equity would mean management is likely to opt for conservative growth,” Standard, which holds a buy recommendation on the stock and a fair value assessment of 11.62 shillings, said in an e-mailed note. “A weakening loan-book quality is reason for concern to investors.”
Barclays shares are down 35 percent this year to 8.85 shillings, the worst-performing lender after National Bank of Kenya Ltd., which has slumped 54 percent. Equity’s stock is down 20 percent while KCB has lost almost 30 percent.