Stanbic cuts loan loss provisions by half as repayments improve
The lender said the decline in the cost of credit was accompanied by an improvement in its loan-loss coverage ratio, indicating better asset quality.
Nairobi, Kenya - Stanbic Holdings has reduced its loan impairment charges by almost half, attributing the decrease to improved customer repayments and a strengthening economy that is reducing credit risks. The decline in credit costs was coupled with an increase in its loan-loss coverage ratio, signifying better asset quality. Stanbic Holdings' Chief Financial Officer, Dennis Musau, noted that while loan impairment charges dropped by 50%, the coverage ratios increased from 62% to 68% year-on-year.
This surge in coverage ratios does not indicate a more cautious approach, but rather a strengthening of the bank's portfolio.
The improvement in Stanbic's financial standing occurs as Kenyan banks benefit from eased economic pressures and a gradual recovery in borrowers' ability to meet loan obligations. Earlier, higher interest rates and a sluggish economy had driven up defaults across the banking sector, compelling lenders to increase provisions for potentially bad loans. Stanbic's improvement in customer repayments is enabling the bank to expand its business with existing clients while maintaining robust protection against potential losses.
Stanbic Holdings announced an 8.2% rise in profit before tax, with profit after tax also increasing by 6.6% to Sh6.6 billion. Musau explained that the higher tax charge was mainly due to the lack of tax savings from the previous year, causing taxes to grow faster than pre-tax earnings. The positive shift in asset quality provides some respite for the financial institution as they navigate a challenging credit landscape marked by elevated financing costs for households and businesses.
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