KCB likely to issue profit warning on Covid woes

KCB Group CEO Joshua Oigara at an investor briefing on March 6, 2019. PHOTO | DIANA NGILA | NMG

By PATRICK ALUSHULA
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Summary

• CEO Joshua Oigara says there is little recovery happening in the fourth quarter of the year, making it difficult for Kenya’s largest lender to pull out of the 43.1 percent decline in nine-month net earnings that has been booked.
• Mr Oigara explains that the fresh wave in Covid-19 infections has hurt prospects of economic recovery, leaving the lender with high possibilities of issuing a profit warning.
• Kenya had 70,804 confirmed cases of the Covid-19 on Monday from 44,196 on October 17, reflecting a 60.2 percent growth in 30 days. Fatalities have increased to 1,287 from 825 a month ago, representing a 56 percent jump.

KCB Group is on course to issue a profit warning this year, weighed down by a sharp increase in losses linked to loan defaults in the wake of coronavirus economic hardships.

This means that the top lender’s profits will drop by at least 25 percent of last year’s earnings — marking the first time in 18 years that the bank will report a fall that requires listed firms to issue profit alert.

CEO Joshua Oigara says there is little recovery happening in the fourth quarter of the year, making it difficult for Kenya’s largest lender to pull out of the 43.1 percent decline in nine-month net earnings that has been booked.

Mr Oigara explains that the fresh wave in Covid-19 infections has hurt prospects of economic recovery, leaving the lender with high possibilities of issuing a profit warning.

Kenya had 70,804 confirmed cases of the Covid-19 on Monday from 44,196 on October 17, reflecting a 60.2 percent growth in 30 days. Fatalities have increased to 1,287 from 825 a month ago, representing a 56 percent jump.

“We don’t anticipate a change. That is quite normal given the crisis we see today. That (profit warning) is an issue we are discussing with the Capital Markets Authority (CMA),” said Mr Oigara.

“Of course it is too early to say now. As we go into December, it is possible that we may make some recoveries. But I don’t think they will reach 25 percent,” said Mr Oigara.

This will mark the first sharp decline in KCB’s profit since 2002 when it posted a loss of Sh3 billion from a net profit of Sh195.64 million in 2001.

The only other decline in KCB full year earnings came in 2017 when net earnings fell by 0.086 percent to Sh19.71 billion.

CMA requires all Nairobi Securities Exchange-listed firms to inform investors in advance whenever they anticipate full year earnings to fall by at least 25 percent.

KCB net profit to September fell by 43.1 percent to Sh10.8 billion as the lender raised its provision for potential loan losses 3.4 times to Sh20 billion to reflect the economic hardships facing borrowers.

The bank has so far restructured loans worth Sh105 billion or 18.2 percent of its loan book to accommodate customers seeking repayment holidays and longer tenures.

Covid-19-induced economic downturn has seem an estimated 1.72 million workers lose jobs in three months to June alone, making it difficult for those who had borrowed on the strength of pay slips to service loans.

Businesses in sectors such as hospitality horticulture, education, media, aviation and manufacturing have had to issue pay cuts, retrenchments and unpaid leaves as their earnings tumbled.

“This is a year of survival. This is not a year to thrive. It is a year to try and hold your business and support customers,” said Mr Oigara.

Mr Oigara says that the rising cases of Covid-19 infections means the economic difficulties will take longer to start clearing, with the best case scenario being June next year.

Local health officials have been warning of the second wave of the pandemic to usher in stringent control measures such as lockdowns akin to what is happening in Europe.