COVID-19: Banks expected to further slash shareholder pay


COVID-19: Banks expected to further slash shareholder pay
Kenya Bankers Association Chairman Joshua Oigara at a past banking sector function PHOTO | KBA

In Summary

  • Lenders might set aside billions for expected credit losses in spite of a softer application of accounting standards under the pandemic.
  • The CBK has previously softened the blow to banks on projected loan defaults by borrowers by allowing for the extension of loan payments by up to 12 months.
  • As of the end of June, the reserve bank disclosed the restructure of Ksh. 844.4billion including Ksh. 240billion as personal/household loans.

Commercial banks are expected to slash their payment to shareholders further as earnings take a hit from the COVID-19 pandemic.

Registering negative growth on earnings for the year looms from depressed income generation and greater risk mitigation through provisioning for credit losses.

Analysts at Genghis Capital say leading banks could hold off against the declaration of both interim and final dividends.

“We do not expect interim dividends from KCB, Absa and Standard Chartered. This is mainly due to uncertainty about the current environment rather than concerns on capital positions. For the full year, we do not expect Equity Group to make a final dividend payment,” the analyst said in a banking sector note.

It is also possible that commercial banks could see subdued growth in interest income from the sector-wide extension of loan repayment to borrowers in line with directives by the Central Bank of Kenya (CBK).

Moreover, lenders might set aside billions for expected credit losses in spite of a softer application of accounting standards under the pandemic.

The CBK has previously softened the blow to banks on projected loan defaults by borrowers by allowing for the extension of loan payments by up to 12 months.

As of the end of June, the reserve bank disclosed the restructure of Ksh.844.4 billion including Ksh.240 billion as personal/household loans.

The CBK further created a soft landing for banks through the lowering of the benchmark lending rate pushing down the cost of funding between banks by way of a lower interbank rate.

As a precaution, local banks have already pulled back on earlier dividend payments covering the pre-Covid era.

For instance, NCBA became the first local bank to pull the plug on its final shareholder pay of Ksh.1.50 a share in April to instead offer shareholders with a bonus share issue for every 10 shares held.

Other banks to slash their dividend pay-out have included Equity Group which withdrew a Ksh.9.5 billion payment in May and Standard Chartered Bank which trimmed its final pay-out by half to Ksh.7.50 a piece in June.

Commercial banks are expected to declare their earnings through six months to June this month. KCB kicks off the disclosures on Thursday.

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Story By Kepha Muiruri
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