Barclays warns of falling margins as it posts Sh7bn profit

By BRIAN NGUGI
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Summary

• Falling margins from loans and advances were beginning to squeeze banks.
• Barclays is the third bank after KCB Group and Stanbic Holdings to announce a profit growth in full-year results.
• The bank warns that the cap on interest rates is likely to constrain further growth backed by interest income going forward.

Barclays Bank of Kenya (BBK) chief executive Jeremy Awori warned on Monday that falling margins from loans and advances were beginning to squeeze lenders, even as the listed firm recorded a seven percent jump in net profit to hit Sh7.41 billion.

The lender's net interest income for the year ended December 2018, including loans to customers and government securities, remained largely flat, rising by Sh190 million — or the equivalent of 0.8 percent — to Sh21.99 billion.

Barclays saw its non-interest income, which comprises fees and commissions, dividend income and foreign exchange income, rise by Sh1.24 billion representing a 14.7 per cent jump to close the financial year at Sh9.7 billion.

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Barclays is the third bank after KCB Group

and Stanbic Holdings

to announce a profit growth in full-year results.

But Mr Awori warned that the cap on interest rates is likely to constrain further growth backed by interest income going forward, forcing banks to tap additional non-interest based revenue streams.

“If interest rate cap remains in place we will see challenges for all banks around interest income so obviously the focus will be on NFI (non-funded income),” he said at an investor briefing yesterday.

“If we see relatively low-interest rates, or we see drops in the CBR (Central Bank Rate) going forward there may be some level of concern that banks are not able to deliver a return on risk rated assets … And that’s hitting the return on equity.”

Mr Awori, however, added that banks will have to innovate should the caps stay.

“Going forward we are in the environment we are in and we have to run our business in this environment,” he said.

The tier-one lender closed the year with a loan book of Sh177.35 billion, a five percent jump from the previous year, while customer deposits increased 11.5 percent to Sh207.4 billion.

The lender’s gross non-performing loans increased by Sh1.8 billion the equivalent of 14.88 per cent to Sh13.9 billion in the period from Sh12.6 billion the previous year as its loan loss provision, booked as an expense in the income statement, jumped 24.2 percent to Sh3.87 billion.

The performance saw the bank declare a final dividend of 90 cents per share, bringing the total full-year payout to Sh1.1 per share, a 10 percent rise.