Kenya’s biggest bank by market value boosted provisions for loan losses more than sevenfold in the first quarter as the coronavirus struck East Africa’s largest economy.
Equity Group Holdings increased provisions to 3.12 billion shillings ($29 million) compared with 410 million shillings a year earlier, while the board decided to withdraw its 2019 dividend to conserve cash during the pandemic, the Nairobi-based lender said in a statement on Thursday. First-quarter net income slumped by 14% to 5.28 billion shillings.
The outbreak “has introduced unprecedented uncertainty within the global financial systems, prompting us to adopt a conservative approach -- fortifying our balance sheet and assuring ample liquidity to support our customers,” Chief Executive Officer James Mwangi said in the statement.
The lender joins other Kenyan banks in boosting provisions for loan losses with the economy forecast by the government to slow to 2.5% this year from earlier estimates of around 6.2%. Last week, Equity Group said it had restructured 92 billion shillings of loans, second only to KCB Group Ltd., the nation’s biggest bank by assets.
“With additional stresses expected to arise beginning second quarter onward, we believe additional loan loss provisions may still be required, especially as economic concerns around Covid-19 become more entrenched,” Nairobi-based Kestrel Capital (East Africa) Ltd. said in an emailed note. “We anticipate a reduction in our fair value estimate of the bank.”
Shares of Equity, which operates in six markets, reversed an earlier gain to trade 0.1% down by 11:33 a.m. in Nairobi, for a decline this year of 33%. KCB rallied as much as 3.8% before paring its advance to 1%.
The group’s business model, which relies on high volumes of low-margin transactions and a low cost of funding, will allow Equity to ride out a compression in margins caused by lower interest rates, the CEO said.
©2020 Bloomberg L.P.