Regional firms have reported a drop in their earnings, pointing to a tough environment last year as they struggled with changing government policies, foreign exchange losses, increased cost of credit and depressed consumer spending.

Companies in the banking, insurance, manufacturing, energy and agricultural sectors reported a drop in their full financial year results for the past year.

Leading the pack are more than 60 per cent of listed firms on the Nairobi Securities Exchange that either reported a drop in their earnings or posted losses.

This was replicated to varying extents across the region as banks, manufacturing firms, energy, agricultural and commercial services firms posted a drop in their earnings.

READ: Interest rate caps eat into Kenya banks’ profits
Non-performing loans, reorganisation of business models and a drive to expand hit the banking sector, with the region largest bank by market capitalisation, Equity Bank, posting reduced earnings.

The bank, which operates in Kenya Tanzania, and Rwanda, reported a 4.1 per cent net profit decline last year, weighed down by higher provisioning for bad debts. Equity Bank made a net profit of $166 million compared with $173 million in 2015.

Its loan loss provisioning rose 2.7 times to $66 billion, driven by a doubling of gross non-performing loans to $187 million.

“Small borrowers have hit us the hardest with default on loans while the capping of interest rates prevents the lender from factoring in the default risk into their lending rates. The micro businesses defaulted highest at 9.5 per cent,” said chief executive officer James Mwangi.
Nine out of the 11 listed banks on the NSE posted negative earnings, with Ecobank recording the largest drop, which most of them blamed on the Banking (Amendment) Bill, 2015.

Interest income

Most banks depend on interest income as their biggest contributor to revenues.

Data from the Central Bank of Kenya shows that the country’s banks made a total of $2.79 billion in interest levied on loans and advances in 2015, almost triple the $1.05 billion seven years ago. It is expected that last year’s interest income earnings for the sector will drop.

The re-evaluation of the South Sudan currency also affected Stanbic, Co-operative Bank and KCB Group’s overall performance.

“Revaluation of assets in South Sudan and non-performing loans saw our profits drop by 10 per to $44 million, from $49 million the previous year,” Stanbic Bank chief executive Philip Odera said.

In Tanzania, the government’s directive reducing state firms’ wasteful spending by restricting public agencies to doing business with government, also had a knock on effect on the private sector.

The directive led to a mop up of $437 million from commercial banks, which almost led to a liquidity crisis.

These austerity measures, which included implementation of the Treasury Single Account (TSA), had an impact on the banking sector with CRDB Bank, the country’s largest bank by assets, being the single most bank, as its profit fell by 38.9 per cent to $ 32.25 million in 2016, from $53.78 million the previous year.

READ:Tanzania’s austerity measures slow down implementation of projects

“The Tanzanian banks used to post double digits in annual profit growth but we have seen a slowdown for the whole industry as the overall growth is subdued. The same factors including non-performing loans and liquidity tightening are still here so we expect them to struggle in their earnings this year too,” said Prof Mohamed Warsame, chief executive of Dhow Financials, a private financial consulting firm.

However, CFC Stanbic Bank in Uganda saw its profit increase by 27 per cent to $52.98 million from $41.75 million the previous year.

Only Jubilee Holdings, which is cross-listed on the NSE, DSE and USE, reported improved performance in insurance sector as four of the six listed firms at the NSE posted negative earnings growth.

The drop was blamed on fraud and rising claims. Jubilee posted a 17.8 per cent growth in profits.

“We have weathered the tough environment to post the best results in this sector, with all business segments and operations posting positive growth. Jubilee increased its general insurance underwriting profit in 2016 with a 90 per cent combined ratio and our 2 new life companies in Uganda and Tanzania achieved positive net results, in only their second full year of operation” Jubilee Group chairman Nizar Juma said.