Edited to include profit before tax down 28% to 12.8bn

Can someone help me understand, if they have restructured loans worth over sh 100B and growing, the provision will be much more i guess by year end?

and what they are providing for is it based on CBK's covid guidance which i think means the provisions could be even higher?

This was anticipated due to covid 19.
The best thing is that it's the higher provisioning that has caused the 40% decline in profit.This will recover with time.

KCB Group, Kenya’s biggest bank by assets, expects the proportion of loans it will restructure due to effects of the novel coronavirus to hit 25% of its total loans by December.

By June it had restructured about 20% of total loan book.

A significant jump in the figure for provision for bad debts is not expected compared to the one witnessed in HY

It's the banks that have stopped lending not borrowers that have stopped borrowing. Banks give out umbrellas when it's sunny and take them away when it starts raining.

https://www.theeastafrican.co.ke/tea/business/optimism-at-kcb-despite-dip-in-profit-rising-bad-loans-1920792

KCB Group’s net earnings dropped by a staggering 40.4 percent in the half year ended June, indicating the impact of coronavirus-related defaults and loan restructuring on the banking industry.

The country’s biggest bank by assets said it made a net profit of Sh7.5 billion in the review period compared to Sh12.7 billion the year before, attributing the performance to increased provisioning for bad debt.

KCB Group CEO Joshua Oigara spoke with Njiraini Muchira after the bank announced its half-year results this past week.

KCB has posted a 40 per cent decline in profitability in the first half of the year. Was this expected?

The Covid-19 pandemic was unprecedented, but the performance is better than our expectations. In our forecast, we had expected 33 per cent of our total loan portfolio to be affected by the pandemic. Of our Ksh560 billion ($5.1 billion) loan book, we had expected up to Ksh170 billion ($1.5 billion) to be impacted. We had a situation that badly affected our customers. Although our numbers went down by 40 per cent, we thought our business could have been affected by as much as 75 per cent.

How did international subsidiaries perform during the period?

They have done quite well considering that last year we had a problem in Uganda where one of our big clients delayed in making payments. This has now been resolved.

Overall performance of the subsidiaries was up by 22 per cent compared with last year. In Tanzania and Burundi we didn't see major issues on Covid-19 restrictions, but it's still too early to call. In Tanzania we have opted to be conservative, and our profitability in the country was down 30 per cent because we increased our provisions.

Is the first half performance a pointer to what investors should expect for the rest of the year?

Not really. We remain optimistic going to the second half because if you look at our balance sheet there is a 17 per cent growth in income, loans and advances increased by 17 per cent, customer deposits were up 35 per cent and total assets by 28 per cent.

Based on this, we should have a better second half despite the impacts of Covid-19. Also, we have restructured Ksh101 billion (923.2 million) loans, which is nearly all the loans we intend to restructure.

Are you concerned about the increase in non-performing loans (NPLs)?

It is a fact that because of Covid-19 our customers are not able to repay their loans following disruptions and even the shutdown of economies. This is almost behind us and we expect that as customers come back our provisions will definitely go down.

We are also happy because we have seen the reopening of many sectors of the economy like restaurants, hotels, transport and even some partial reopening of schools.

We have to be more conservative and support our customers during this period. When the economy turns around, the customers we supported the most will be on the right side of our business. The NPLs do not worry me because they are in line with impacts of Covid-19 in our markets.

How badly has the restructuring of loans affected your interest earnings?

The only thing is that we have increased is the level of provisions. This is the only impact because we have extended the loan period and waived fees. We have completed most of the loan restructuring. What’s left is not more than five per cent.

How has the consolidation of National Bank of Kenya (NBK) impacted your performance?

It is positive, and we are on track. The only thing that is remaining is putting additional capital of KSh3 billion ($27.4 million), which will be completed by the end of September. We have a plan to recover NBK’s non-performing loans. We are confident that by the end of the year the NPLs will have come down from 45 per cent to 30 per cent.

Covid-19 is becoming the new normal. How is this going to change banking?

It is too early to say how banking will change, but our customers are learning about our different channels. We are at a point of reflection and remain optimistic that the world will find a solution to cope with the virus. We have been operating non-stop since March despite the situation, and we will continue to do so.