Housing Finance Group Posts 21.5 Percent Surge in Interest Income

Housing Finance Group posted a 21.5% surge in interest income to KES 4.50Bn boosted by a 7% growth in loans and advances to KES 53.47Bn from KES 49.98 Bn. This led to the net interest income shoring up by 21.8% to KES 2.09Bn, buoyed by contribution from their banking subsidiary.

The Group increased its holdings in government securities from KES 515Mn to KES 3.7Bn, taking advantage of the improved yields on government papers. The company is expected to retire the first tranche of its 7-year paper in October 2017 with a principal amount payable of KES 1.17Bn. This could have necessitated the company to gradually grow their held to maturity investments gradually, to be able to roll over the debt.  We opine they could be heavily exposed on the short end of the curve, as the same has occurred within the last three quarters of the year.

Overall, the NIMs stood at 7.1%, an improvement from 6.6%, the previous year on account of stabilization of interest rates. With the interest cap rate bill awaiting presidential assent, we anticipate improved NIMs going forward, if the president fails to it sign into law.

Growth of Non-Funded Income Contribution to Operating Income…

Customer deposits grew at a much slower rate of 6.2% (h-o-h) to KES 39.75Bn, on account of increased customer numbers; resulting in a loan-to-deposit ratio of 1.34x.

Non-interest income grew by 35.8% to KES 416.94Mn, on account of a huge jump (221.1%) in other income occasioned by higher property sales. Fees and commissions on loans and advances declined by 40.3%, while other fees and commissions rose by 30.4%. 

Overall, the contribution from non-funded income to total revenues surged to 16.7% from 15.2%, the previous reporting.

Cost to Income Ratio Improves Marginally by 110bps; Book Quality Deteriorates…

Gross NPL ratio slid to 10.0% (HY16) vis-à-vis 8.3% (HY15), indicative of some rise in the gross non-performing loans. This was on account of delayed liquidation of some project loans whose conveyance process was still in progress and is expected to be paid off during the year. This is expected to reduce the Gross NPL ratio to 7% from the current 10%.

Total operating expenses rose by 18.6% to KES 1.61Bn, bogged down by a 235.7% and 1,861.7% rise in rental and amortisation charges respectively. The surge in amortisation charges could be attributed to the commissioning of a new core banking system, which was to enable HFC to roll out new products including mobile banking and internet banking which is currently underway.  Despite the rising costs, we saw a slight contraction on the cost-to-income ratio to 52.3%, which is well applauded.

Profitability Margins Improve with the 26.3% Growth in Profits after Tax…

Overall the company improved its bottom line by 26.3% to KES 612.55Mn propped by growth on both the interest income and the non-funded income. The earnings per share stood at KES 3.51, though the company did not offer any interim dividend for the period concluded.

Return on Assets (ROA) and Return on Equity (ROE) stood at 0.9% and 5.6% for the half year ended compared to 0.7% and 4.9% previously.