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UPDATE 2-Bad loans, rate cap cuts Barclays Bank of Kenya's 2016 profit
February 22, 2017 / 1:49 PM / 9 months ago

UPDATE 2-Bad loans, rate cap cuts Barclays Bank of Kenya's 2016 profit

(Adds comments from the CEO)

By George Obulutsa

NAIROBI, Feb 22 (Reuters) - Barclays Bank of Kenya will focus on growing its non-interest income after a jump in bad debts and a government cap on lending rates cut its 2016 pretax profit by 10 percent, it said on Wednesday.

The cap on lending rates, introduced last September, was expected to squeeze margins and profits at Kenyan banks. The cap limits commercial bank lending rates at 400 basis points above the central bank rate, which stands at 10 percent.

The government brought in the cap because it said lending rates were too high. Businesses in Kenya had complained that high commercial lending rates charged by the banks had hindered corporate investment.

“In general it has impacted our revenue line in the region of about 15 percent,” Jeremy Awori, the bank’s CEO, told Reuters.

The bank’s pretax profit fell to 10.85 billion shillings ($105 million) from 12.07 billion shillings a year earlier, hurt by increased provisions for bad debts and the rate cap. Revenue rose 8 percent.

“We are growing our non-funded income, especially as our interest income starts getting impacted,” Awori said, referring to non-interest income generated by selling other products such as insurance.

Awori said banks were moving swiftly to find new revenue streams to make up for the expected income squeeze from the rate cap.

Economists had said the interest rate cap risked hurting economic growth by discouraging lending to smaller borrowers who are deemed more risky.

Provisions for bad debts rose to 3.92 billion shillings from 1.77 billion shillings a year earlier as bad debts nearly doubled.

The bank attributed the rise in non-performing loans to job losses at companies that caused personal borrowers to default.

The bank is part of Barclays Africa, where majority owner Barclays Plc, is reducing its stake.

$1 = 103.4300 Kenyan shillings Additional reporting by John Ndiso; Editing by Duncan Miriri and Jane Merriman

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