* Non-performing loans rise for KCB, Equity
* Equity takes a 0.7 bln shilling hit on South Sudan
* KCB aims to lend in new areas such as oil and gas
(Adds Equity Bank's numbers)
By Duncan Miriri
NAIROBI, Feb 27 Kenya's biggest bank by assets,
KCB, and its largest lender by depositors, Equity
, reported double-digit earnings growth last year,
helped by increased lending across several African countries.
The growth in pretax profit was however curbed by rising bad
debts and conflict in South Sudan where they both have
The chief executive of Equity, which has operations in five
regional countries, said the bank booked a 0.7 billion Kenyan
shillings ($8.1 million) impairment charge on its South Sudan
business, after conflict erupted in December.
James Mwangi said business volumes had fallen by 40 percent
since the rebellion started. Equity has a 40 percent market
share in South Sudan while KCB, which operates in six east
African states, has about 52 percent.
Both banks said non-performing loans rose, an industry-wide
trend that analysts in part blame on delays in payments by
government to contractors which have sought bank financing for
state road and other infrastructure projects. Those delays are
blamed on Kenya's election last year.
KCB's non-performing loans rose to 8.1 percent from 6.7
percent the previous year, reflecting difficult conditions at
home and conflict in South Sudan.
Collins Otiwu, KCB's chief financial officer, said the bank
was confident about longer-term prospects for South Sudan, which
contributes about 10 percent of profit, despite shutting down
four of its 21 branches due to the fighting.
"We have put in all the provisions that we needed to put in
so you won't see anything significant in 2014," he said.
Equity said its non-performing loans rose to 5.19 percent
during the year from 3.1 percent, citing similar reasons.
KCB said it aimed to increase its return on assets to 4.1
percent this year from 3.8 percent last year. It is also aiming
for a 30 percent return on equity from 24.4 percent.
Chief Executive Joshua Oigara said the bank would do this by
cutting the cost-to-income ratio to just under 50 percent from
54 percent last year. He said one step would be to centralise
routine processes such as opening accounts.
KBC shares, some of the most frequently traded, rose 2.3
percent to 44.75 shillings.
Standard Investment Bank said in a note to clients that
KCB's outlook was promising, but it must cut costs and deal with
bad debts. It put a fair value of 53.37 shillings on the bank's
KCB aims to lend more to small and medium firms and
consumers to cut reliance on lower-yielding corporate lending.
CEO Oigara said the bank was already lending to firms
exploring for oil and gas in Kenya's far north where
London-listed Tullow Oil struck oil in 2012.
Analysts said KCB, which retained more than half its
earnings and raised the dividend by just 5 percent to 2
shillings a share, was preparing for opportunities from regional
integration in east Africa.
"This speaks to a bank looking to conserve its cash in order
to bet bigger on East African Community (EAC) common market
growth," said Aly Khan Satchu, an analyst and trader.
Profit at KCB rose 17 percent to 20.1 billion shillings
($232 million) last year. Equity's profit climbed 11 percent to
19.15 billion shillings.
($1 = 86.5000 Kenyan shillings)
(Editing by Erica Billingham)