BANKS SHRUG-OFF NPLS AT EXPENSE OF PROFITS

The banks are struggling to balance profitability level while shrugging-off bad debts.

The banks mostly largest such as CRDB, NMB and Citi saw their profitability tumble as they comply with new accounting procedure International Financial Reporting Standard (IFRS) 9.

Zan Securities CEO Raphael Masumbuko said banks are struggling to clear off their balance sheets to conform to the new accounting procedures, thus eating their profit margins. “The [banks] profitability level will bounce back to acceptable level this year,” Mr Masumbuko said.

He believed that the issue was a one-time issue since banks have set aside a large amount to cushion the new reporting procedures. For instance NMB, CRDB and Citi banks have set aside 130.9bn/-, 152.3bn/- and 172.2bn/- respectively for probably bad debts last year.

The amount pruned the three banks net profits considerably in the last 12 months while battling nonperformance loans. The amount set aside by Citi climbed up 15 times to 172.2bn/- from 11.4bn/-. NMB impairment increased four times to 130.9bn/- from 30.2bn/-, while CRDB inched up to 152.3bn/- from 122bn/-.

The level of provision for impairment depicted increased non-performing loans in the entire banking industry. On average, last year, the NPLs ratio was 11.7 per cent compared to industrial benchmark of 5.0 per cent.

NPLs of NMB, CRDB and Citi were 6.4 per cent, 12.6 per cent and 0.10per cent respectively. Orbit Securities said yesterday NPLs and provisioning for impairment could be indicative of existence of dangerous waves in the ocean of credit sector, but what to do if this is the “new normal”.

“Banks attention should be drawn to a wise saying that “a ship is safe in harbor, but that’s not what ships are built for,” Orbit said in a weekly report.

Nevertheless, every cloud has a silver lining since some banks such as NBC, TPB, People’s Bank of Zanzibar, Barclays Azania Bancorp and Mkombozi posted a good profit margins. NBC despite increasing provision for impairment managed to record a net profit of 15.4bn/- up from 13.8bn/- of previous year.

NPLs jumped to 12.4 per cent from 9.1 per cent while the impairment slightly over double to 25bn/- from 13.4bn/-. TPB posted a net profit of 12.7bn/- up from 10.86bn/- despite NPLs to surge to 6.3 per cent from 4.04 per cent. Azania Bancorp emerged from the red of 6.0bn/- to post a net profit of 1.8bn/- while reducing their NPLs ratio to 12.29 per cent from 13.1 per cent.

Mkombozi Bank also posted profit increase of 1.44bn/- from 1.04bn/- while its NPLs was below the sector average at 7.0 per cent. Barclays profitability jumped to 11.3bn/- from 9.8bn/-. Mwanga Community Bank net profit went up for over four times to 226.7m/- compared to 51.5m/- of previous year.

However, NPLs increased to 23 per cent from 18 per cent. EcoBank despite being one of the poor performing in 2017, its net profit loss decreased to 18.11bn/- from 41.63bn/- while NPLs increased to 62 per cent from 38 per cent.

Orbit Securities warned at the beginning of this year that banking sector adoption of IFRS 9 may eat into banking profitability. The IFRS 9 came into force after 2008 financial crisis, simply directing all financial instruments to be reported at fair values with all changes reported in net income or profit and loss.
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