HFC Bank bites the bullet to clean books
HFC Bank has taken a bold step to make appropriate provisions for non-performing loans (NPLs), some of which have remained on the bank's books for more than 10 years.
Advertisement
The provisioning for bad loans, some of which dated back to when the bank started operations as a universal bank, rose by 474 per cent from GH¢14.2 million in 2014 to GH¢81.8 million last year.
The strong growth in impairment charges was due to a significant increase in the level of NPLs and inadequate provisioning approaches in the past, the bank's Managing Director, Mr Robert Lennard Le Hunt, told shareholders at an annual general meeting (AGM) in Accra.
“The prevailing economic and financial climate compelled management to take some hard decisions on our loan portfolio, which has negatively impacted our levels of provisioning, our interest income and by extension, the bank’s profitability. We are, however, confident that these are the right decisions to take and these decisions will serve us in good stead in the future," he said.
The large provisioning for bad loans did not deter the bank from lending, as its gross loans and advances rose by 45 per cent from GH¢699 million in 2014 to GH¢1.01 billion in 2015.
Although loans classified as performing grew marginally from GH¢626 million to GH¢800 million last year, the NPLs rose by a whopping 193 per cent from GH¢72.8 million in 2014 to GH¢213.8 million in the last financial year.
Duration of bad loans
Despite the worrying trend in the bank's NPLs, its assets grew by 19 per cent to GH¢1.60 billion from GH¢1.34 billion in 2014.
Interest expense also rose by 76 per cent, compared to the 31 per cent growth in interest income.
Operating income and net interest income rose by two per cent and eight per cent to GH¢203 million and GH¢143 million respectively.
“This was as a result of freezing interest on GH¢133 million loans and advances which moved from the performing to the non-performing category. These loans continue to be financed by deposit liabilities which attract high interest cost. The majority of these loans represent facilities granted in the earlier years when the bank started operations as a universal bank,” the MD said.
Going forward
The Board Chairman of the bank, Professor Joshua Alarbi, assured shareholders that “consistent with the bank’s value of continuously delivering added value to our shareholders, your bank will work hard at providing satisfactory return in 2016 and beyond.”