Mortgage financier HF Group recorded a 73 per cent net profit drop in the first quarter ended March in the wake of surging defaults.
The lender’s net earnings in the period stood at Sh88.3 million compared to Sh327.4 million in the year before.
HF’s interest income declined 19.5 per cent to Sh1.8 billion as it recorded significant defaults on its loan book, which grew a marginal 2.1 per cent to Sh54.5 billion.
Gross non-performing loans jumped 72 per cent to Sh7.7 billion, prompting the Nairobi Securities Exchange-listed firm to raise its provisions for the bad debt by 46.6 per cent to Sh200.7 million.
HF also took a hit from the capping of interest rates, which were absent in the corresponding quarter. The company’s liquidity ratio dropped to 21.4 per cent, staying above the statutory minimum of 20 per cent by a thin margin.
This means the lender has limited headroom in accepting more deposits unless it turns its illiquid assets to cash and cash equivalents.
The lender reduced its deposits 6.3 per cent to Sh38.2 billion in the review period, a move that led to interest expenses dropping 18.9 per cent to Sh1 billion.
HF’s other income, including property sales, declined 28.5 per cent to Sh172.8 million. The company has blamed bureaucracy at the Land ministry for the sluggish real estate deals.
The lender’s constrained liquidity position comes ahead of the maturity of its Sh7 billion corporate bond on October 2 that may pile pressure on the company to raise funds.
Chief executive Frank Ireri recently told the Business Daily the company will redeem the debt from a mix of internal cash generation and refinancing from international lenders.
HF raised the Sh7 billion in two tranches in 2010 at cheaper rates when markets were more accommodative, with corporates bonds typically oversubscribed.
The company raised Sh5.86 billion at an annual fixed interest rate of 8.5 per cent. The other Sh1.16 billion was issued at a variable rate of the coupon based on the latest 182-day T-Bill plus a margin of three per cent, subject to a minimum of five per cent and a maximum of 9.5 per cent.
HF’s bond is nearly 10 per cent of its total assets.
Credit: Business Daily