This archive report was first published on 8 June 2020.
Covid-19 shock dims earnings prospects for EA banks for 2020 ¶
East Africa's listed banks have reported flat or reduced profits for the first quarter of 2020, setting the stage for a subdued performance in the year ahead as the Covid-19 pandemic stifles economic activity.
According to a report by James Anyanzwa, the banks' first quarter performance shows both interest and non-interest income came under immense pressure, as loan loss provisions increased sharply.
Analysts predict that banks will remain sceptical on lending, especially to retail and SMEs, and will instead put cash in government securities. This will lead to a shrinking of their profit margins.
Shareholders also face diminished prospects for dividend payouts, with some already having to contend with cancellation of last year's disbursements.
Maendeleo Bank Plc (Tanzania), Bank of Kigali, Equity Bank, Standard Chartered Bank (Kenya), Stanbic Bank Kenya, and I&M Holdings all recorded reduced profits while mortgage lender Housing Finance sank deeper into the loss-making territory in the first quarter.
Absa Bank Kenya and Co-operative Bank announced flat profits, while KCB and Diamond Trust Bank recorded single-digit growth in net earnings between January and March.
Regional central banks have implemented intervention measures to boost liquidity in the banking system and ensure lenders extend the relief to borrowers whose cash flow positions have been affected by the Covid-19 pandemic.
However, while the lenders have made several loan restructuring for the borrowers, demand for new loans has thinned, shrinking interest income on loans and advances.
Analysts at Cytonn Investments Ltd predict that banks will find it difficult to lend to businesses and individuals as the risk levels have increased and in turn exert upward pressure on interest rates.
According to the Bank of Uganda (BoU), the Covid-19 pandemic is likely to reduce demand for credit on account of slackening economic activity, at least in the short-term.
