Absa Bank has reported profit of Ksh. 6.5 billion after tax, a 23% decline compared to a similar period last year. The decline is attributed to the downturn economic effects of COVID-19.
Normalized performance excludes an exceptional cost of Ksh. 3.2 billion. This amount went towards the recently concluded brand transition to Absa and restructuring programs.
The bank’s performance was significantly impacted by a double growth in impairment, as customers struggled to keep up with loan repayments. In line with this, the management took a decisive action to increase provisions in order to best position for future potential credit losses.
During this period, the bank offered loan relief and restructures, totalling to over Ksh. 62 billion to customers. This amount, according to the bank, is equivalent to 30% of its loan portfolio. Absa also contributed over Ksh. 50 million to the COVID-19 Fund. A further Ksh. 13 million was invested through staff-led initiatives in the fight against the pandemic.
Speaking during the release of the bank’s full year results, Absa Kenya Managing Director Jeremy Awori said, “2020 was a tough year and as is expected, the hardships of the banking sector have continued to follow those of the customers and the broader economy. As a result, many sectors have slowed down and peoples’ livelihoods have been greatly disrupted.”
Despite the raging effects of the pandemic, all business units remained profitable and resilient, registering growth on key lines. Business Banking and Global Markets divisions revenue grew in double digits.
Total income grew by 2% to Ksh. 34.5 billion mainly driven by the growth of non-interest income, which was up 5% year on year. Normalized costs were well maintained, dropping by 4% year on year. Interest income grew by 1% from the prior year largely because of growth in lending.
Customer deposits grew by 7% to Ksh. 254 billion with transactional accounts making up to 69% of the total deposits.
Highlights from the report include
Normalized costs: The bank’s costs were well managed at Ksh. 16.6 billion reflecting a 4% reduction year on year. This was largely attributed to cost-saving initiatives which included automation of processes and continued migration of customer transactions to digital channels.
Update on the transition to Absa: Our transition to Absa was successfully completed on time and on budget, having migrated all our technology systems and rebranded all business assets to Absa. The bank will continue upgrading to more advanced systems which will ultimately help enhance the service experience.
Normalized financials: To ensure that the financial performance is comparable and to report the progress on the underlying business. Ksh. 3.2 billion has been reported as an exceptional item relating to the cost incurred in the transition project and the recently concluded restructuring program.
Impairment: Impairment increased by two-fold compared to a similar period reflecting forecast deterioration in macro-economic variables and a few client names. The bank has applied a prudent approach in provisioning for the COVID-19 impact on our customers by taking up an additional Ksh. 5 billion impairment.
Capital and Liquidity: Absa’s capital and liquidity ratios remain strong with sufficient headroom above the regulatory requirement. The bank capital adequacy ratio is at 17.5% and liquidity reserve position at 38.7% against the regulatory limits of 14.5% and 20% respectively.
Outlook: The level of uncertainty relating to the COVID-19 pandemic remains high and unprecedented, and its impact on markets and the global economy is already profound. We recognize that 2021 presents a positive outlook especially with the on-going vaccination against the virus.