Analyzing the Housing Finance Group Q3 Financial Results

The Housing Finance (HF) Group released Q3′ 2016 earnings posting a 7.8 percent growth in core EPS to 2.4 shillings from 2.2 shillings realized in Q3′ of 2015.

The growth in earnings for the Housing Finance was driven by a 21.0 percent growth in operating revenue despite a 25.7 percent growth in operating expenses, with the absolute gain in revenue being higher than the gain in expenses.

Operating revenue for the company grew by 21.0 percent to 3.8 billion shillings from 3.1 billion. According to the management, this was supported by a 14.2 percent growth in Net Interest Income and 67.1 percent growth in Non-Funded Income.

Net Interest Income growth of 14.2 percent to 3.1 billion shillings from 2.7 billion was supported by a 14.6 percent growth in Interest Income to 6.7 billion shillings from 5.8 billion shillings, despite a faster growth in Interest expense of 15.0 percent to 3.6 billion shillings from 3.1 billion shillings in Q3’ of 2015. As a result of growth in NII, the Net Interest Margin improved to 6.7 percent from 6.5 percent previously.

Non-Funded Income grew by 67.1 percent to 0.7 billion shillings from 0.4 billion shillings. The growth in NFI was driven by an increase in other income that recorded a 223.2 percent growth to 0.4 billion shillings from 0.1 billion shillings, attributed to property sales, which is an indication of increased uptake in the group’s real estate projects. The revenue mix stood at 82:18, Funded to Non-Funded Income, from 87:13 in Q3’ of 2015,

Operating expenses for the company grew by 25.7 percent to 2.6 billion shillings from 2.0 billion shillings previously. The growth in operating expenses was driven by a 16.7 percent rise in Loan Loss Provision (LLP) to 0.5 billion shillings from 0.4 billion shillings and other expenses, which rose 20.9 percent to 0.9 billion shillings from 0.7 billion shillings. Staff costs grew 8.0 percent to 843.7 million shillings from 781.5 million. Without LLP, operating expenses grew by 28.1 percent to 2.1 billion from 1.6 billion shillings.

The cost to income ratio deteriorated to 68.1 percent from 65.6 percent. Without LLP, cost to income ratio stood at 55.0 percent from 52.0 percent in the same period last year. On the other hand, profit after tax increased by 7.8 percent to 837.7 million shillings from 777.5 million shillings in Q3’ of 2015.

Customer deposits rose by 10.8 percent to 41.6 billion shillings from 37.6 billion shillings while loans and advances increased by 4.3 percent to 53.9 billion shillings from 51.7 billion shillings. This led to a decrease in the loan to deposit ratio to 129.6 percent from 137.6 percent, which is quite high compared to the industry average of 86.1 percent, and a preferential range of 80 – 90 percent.