Unrecovered loans, operational expenses, others plunged Kuda to N6bn loss in 2021: report

An estimated loss of 6 billion naira ($14.2 million) was incurred by Kuda MFB, a neobank using a Nigerian microfinance bank license in 2021.

TechCabal citing the bank’s 2021 financial report detailed that the loss was a whopping 602% increase from the 868 million naira ($2 million) loss it suffered in 2020.

According to the report, the bank incurred a whopping $2.2 trillion in non-performing loans (NPLs) in 2021 due to the company’s high rate of depreciation – declining value of its assets.

He further clarified that the company’s increased use of expensive senior executives, compensation reviews and promotions of current employees, also drove up its personnel costs by around 500%, from 215, 4 million naira in 2020 to 1.2 million naira.

Additionally, an increase in labor resulted in a significant increase of 246% in depreciation – an asset payment spread over overtime from N18.5m to N64.3m naira. Operating Expenses (OPEX) for Kuda as a whole increased by 652% from N93.5 million to N7 trillion in 2021.

“The company’s revenues do not justify these expenses in the short period of time,” the statement said.

When it is probable that the creditor will not be able to collect all interest and principal payments due in accordance with the terms of the loan agreement, the loan is said to be impaired.

The report explained that Kuda was unable to guarantee that interest and principal on 96% of loans issued in 2021 would be paid when due, which would weaken its assets.

Recall that Kuda began testing its overdraft product with more than 2,500 users who “actively use their Kuda accounts” just days before announcing its $25 million Series A in March 2021. In June, it claimed that the product had 50,000 weekly users.

The bank also said that by the end of the second quarter of 2021, it had issued $20 million in credit to more than 200,000 qualified users with a 30-day repayment period.

Kuda has provided Nigerians with easier and faster access to loans, however, risk analysts have criticized its loan write-off procedure, saying the bank needs to rethink and incorporate more risk assessment into its overdraft offering or abolish it completely.

Sherrifdeen Tella, a finance expert and professor of economics at Olabisi Onabanjo University, told the Peoples Gazette the record loss would redefine the bank’s operations going forward.

He said operators were not “cautious in the way Nigerian banks operate. They must therefore strengthen the risk assessment procedure and processes.

He further advised the bank to work with microfinance banks that have been in the market for a long time and also have a manageable leverage and loss profile.

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