The Standard Chartered Bank has issued a profit warning for the full year ending December 2017, being the first lender to do so this year.
In a statement sent to newsrooms, the lender has cited the coming into effect of the interest capping law a year ago as the main reason for projected low earnings as well as the persistent unpaid loans.
The bank has said that it expects this year’s earnings to be 25 percent lower than what was recorded in 2016. The net profit is, therefore, expected to come in at 6.75 billion shillings from 9 billion shillings recorded last year.
During its Q3 result announcement, the bank registered a drop in profits by 38 percent to 4.7 billion shillings with the lender blaming it on nonperforming loans.
According to Standard Chartered, the effectiveness of the interest capping law locked out most of their potential clients such as the small medium enterprises (SME) leading to the drop in earnings from loans to 10 billion shillings from 11.4 billion shillings.
The government capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which stands at 10 percent, and put a minimum deposit interest rate of 70 percent of the benchmark.
The loans book, on the other hand, dropped from 122.7 billion shillings in December 2016 to 114.2 billion shillings in September 2017.
The bank reduced its profits by 3.7 billion shillings in the nine months compared to 1.8 billion shillings in the similar period last year to cover risks associated with the unpaid loans that stood at 16.9 billion shillings.
Most lenders in Kenya have registered a drop in their earning owing it to the interest capping law as well as the sluggish economy that has been hit by a prolonged political uncertainty. Economists are, however, optimistic that things will work out.