Absa Bank Kenya has reported a normalized profit after tax of Ksh2.3 billion for the first three months of 2020, a 13 per cent growth driven by an 8% growth in total income and a 5% drop in operating costs.
However, Absa notes that the normalized profit excludes an exceptional item of Ksh600 million, which relates to costs incurred in the transition to Absa.
Total Income increased to Ksh8.6 billion on the back of growth in non-interest income and interest income. Non-interest income was up 16 per cent year on year (YoY) due to growth in risk fees, fixed income trading, and risk-managed products. On the other hand, Absa attributes the 5 per cent YoY growth in interest income to growth in the lending book partially offset by the margin compression as a result of a drop in Central bank reference rate (CBR).
Absa costs for the quarter reduced 5 per cent YoY to Ksh4.1 billion largely due to cost-saving initiatives such as automation of the processing centres, investment in alternative channels, and branch rationalization programs.
Operating profit growth of 24% to Kes 4.5billion.
Total Assets recorded a 10% YoY growth to Ksh382 billion driven by growth in customer loans and investments in government securities. In this case, net customer loans and advances for the quarter were up 12 per cent to Ksh203 billion compared to a similar period last year. Loan categories recording growth include; general lending, trade loans, mortgage, and scheme loans.
In the period under review, customer deposits were Ksh239 billion, up 7% YoY.
Impairment increased by 75% compared to a similar period last year largely attributable to a few specific client names. The Bank’s average loan loss ratio increased to 2.2% (1.4% in 2019) and Net NPL ratio increased to 3.0% from 2.8% in 2019.
Capital & Liquidity– The total capital adequacy ratio was at 16.5% and liquidity reserve position at 37.9% against the regulatory limits of 14.5% and 20% respectively.
Normalized earnings are adjusted to remove one-time revenue and expenses and help business owners and financial analysts to understand a company’s true earnings from its normal operations.
Update on the transition to Absa
The lender says it has made significant progress in the separation journey having unveiled the new Absa brand in the Kenyan Market in February. For instance, it has successfully migrated most of the technology systems that were previously hosted in Barclays UK and is still upgrading to more advanced systems. In addition, Absa has rebranded its legal assets including changing of the trading ticker at the NSE.
ABSA notes that the transition program will continue to have an impact on the financial results with expenditures on modernizing the systems as well as the continued investment towards building awareness, consideration, and love for the Absa brand.
In the period under review, Absa reported separation costs of Ksh600 million which is an exceptional item and will be incurred throughout the separation period.
ABSA says that the banking industry will feel COVID19 impacts from April onwards and most likely continue throughout the year. The lender has rolled out a number of initiatives to support customers through this period ranging from loan repayment holidays, to loan restructures as well as training and mentorship programs for our SME customers. Furthermore, ABSA donated ksh 50Billion to the COVID-19 Emergency Response Fund.
Dividend & AGM
The Bank’s Board has maintained its recommendation for the payment of a final dividend of Ksh 0.90 for the full year 2019 to shareholders on the register by June 03, 2020. The bank will also hold its virtual AGM on June 19, 2020.