Covid-19 pandemic has seen the world confront its biggest health crisis this century, posing one of the most disruptive periods to businesses, forcing banks to empathise with clients’ lost livelihoods and businesses by easing off on loan payment demands

Top East African banks increased provisions for bad debts by over $736 million last year (2020) to reduce exposure on household and business loans in countries ravaged by Covid-19 pandemic, affecting impacting profitability and returns to shareholders.

A review of the banks audited financial statements shows that top eight Kenyan banks by market share more than tripled their loan loss provisions to Ksh104.64 billion ($960 million) from Ksh28.68 billion ($263.11 million) in 2019.

Equity Bank, the largest lender in the region by assets ($9.35 billion) and market capitalisation ($1.44 billion) took the greatest hit on its net earnings after increasing its loan loss provision by Ksh21.6 billion ($198.16 million) to take care of the Ksh171 billion ($1.56 billion) worth of loans that had been restructured to bailout customers adversely affected by the pandemic.

Study in resilience

As a result the lender increased its bad loans coverage by more than 89 percent.

“Our corporate purpose of ‘Transforming lives, giving dignity and expanding opportunities for wealth creation’ became the guiding compass of the organisation’s essence on how to navigate through the crisis and the challenging environment,” said James Mwangi, chief executive, Equity Bank group.

“Our results and performance became a human story of resilience and determination to live an ethical human purpose,” Dr Mwangi added.

Equity Bank was followed by KCB and NCBA banks which increased their loan loss provisions by Ksh18.62 billion ($170.82 million) and Ksh14.19 billion ($136.69 million) respectively.

Other Kenyan banks that significantly increased their loan impairments include Diamond Trust Bank (DTB) which grew its provisions by Ksh6 billion ($55.09 million), Co-operative Bank ($51.19 million), Absa Bank Kenya ($44.22 million), Standard Chartered Bank Kenya ($30.36 million) and I&M Bank ($16.88 million).

“The Covid-19 pandemic has seen the world confront its biggest health crisis in this century, posing one of the most disruptive periods to businesses. As a Bank, we recognise that our actions during this pandemic are essential in keeping our economies across the region going,” said Joshua Oigara, chief executive, KCB Group.

Loan loss provisions

In Rwanda the Bank of Kigali (BK) which is listed on the Rwanda Stock Exchange (RSE) and cross-listed on Nairobi Securities Exchange increased its provisions for bad loans by 83 per cent ($16.6 million) to $40.2 million from $23.6 million.

According to National Bank of Rwanda, Rwandan banks restructured loans worth Rwf799.9 billion ($218 million), accounting for 31.7 per cent of total loans last year (2020).

In Tanzania, National Microfinance Bank (NMB) increased its loan loss provisions by $7 million while CRDB reduced its provisions by $8 million.

In Uganda, Stanbic Bank Uganda’ bad loan provisioning more than doubled to Ush91.8 billion ($25 million) in 2020 from Ush43.5 billion ($11.8 million) in 2019, leading to a sharp dip in profits to Ush242 billion ($66 million) from Ush259 billion in 2019 ($70.6 million).

DFCU Bank which is listed on the Uganda Securities Exchange (USE) increased its loan loss provisioning to Ush30 billion ($8 million) from Ush14 billion ($3.8 million.

Its profit plummeted to Ush24.077 billion ($6.5 million) from Ush73.40 billion $20 million.

“The increase in the net loan loss provisions is attributed to the negative impact of Covid-19 on our customers’ business operations,” said Kate Kiza, DFCU chief finance officer.

Comparatively, West African banks under-provisioned their loans by $157 million while South, Central African banks under-provisioned by $28milion, according to market analysts at the African Financials Group.

The analysts through a market report dubbed Sub-Sahara Africa: December 2020 Bank Bad Debt Charge-Offs, which was released last week shows that Tanzanian banks gave out loans estimated at t $3.46 billion last year but retained loan loss provisions at the same level of $84 million.

In comparison

The report dated March 29 2021 shows that in West Africa, Nigerian banks lent a total of $22.57 billion with bad debt charge increasing 73 per cent to $433 million from $ 251 million in 2019 while Ghanaian banks lent an estimated $614 million with loan loss provisioning increasing 182 per cent to $37 million from $13 million in the same period.

Ghana’s five-year average loan loss provisioning stood at $19 million.

Other countries’ banks such as those in South and Central Africa reduced their loan charge-off levels in both dollars and percentage terms.

For instance, banks in Botswana reduced their loan loss provisioning by 85 per cent to $2 million from $16 million on a total loan book of $941 million while those in Malawi reduced bad loans charge by 17 per cent to $2 million from $3 million on a total loan book of $215 million.

In Zambia, the banking industry reduced loan loss provisions by 29 per cent to $1 million from $2 million on a total loan book of $354 million.

According to the report, Kenya and Ghana are the countries where banks look to have done precautionary provisioning as judged by the 2020 loan charge-off compared with their five-year average charge-off.