HF Group posts record $10.9m profit as bond strategy drives turnaround. Deposits surge, margins expand, but dividend drought persists.

HF Group Profit Hits Record on Bond Strategy

Historic Profit Marks Full Turnaround

HF Group Plc delivered a record profit after tax of KSh 1.42 billion (≈ $10.9 million) for the year ended December 2025, marking a decisive recovery from cumulative losses of KSh 4.6 billion ($35 million) between 2018 and 2021.

The result confirms a complete strategic reset, driven not by aggressive lending, but by balance sheet reallocation and treasury optimisation—a rare but increasingly relevant playbook in high-rate environments.

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Treasury-Led Earnings Surge

The dominant earnings engine was a 66% expansion in government securities holdings to KSh 28.27 billion (≈ $217 million), generating KSh 2.83 billion ($21.7 million) in investment income, up 79% year-on-year.

This pivot reflects a deliberate shift into sovereign paper, capitalising on elevated yields during the Central Bank of Kenya’s monetary cycle.

In effect, HF Group substituted credit risk with sovereign yield capture

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Data Snapshot: Core Financials (KES & USD)

Metric	FY2025	FY2024	YoY Change
Net Profit	KSh 1.42bn ($10.9m)	KSh 0.46bn ($3.5m)	+209%
Profit Before Tax	KSh 1.61bn ($12.4m)	KSh 0.46bn ($3.5m)	+250%
Govt Securities	KSh 28.27bn ($217m)	KSh 17.0bn ($130m)	+66%
Investment Income	KSh 2.83bn ($21.7m)	KSh 1.58bn ($12.1m)	+79%
Net Loans	KSh 41.11bn ($316m)	KSh 38.85bn ($299m)	+5.8%

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Balance Sheet Expansion Without Credit Risk

Total assets crossed KSh 82.4 billion (≈ $634 million), while customer deposits surged 18.4% to KSh 56.9 billion ($438 million).

Notably:

• Deposit growth funded investment allocation, not loan expansion
• Lending growth remained muted at 5.8%

This signals a defensive but highly profitable balance sheet stance, prioritising liquidity and yield over credit expansion.

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Margin Expansion Driven by Funding Cost Collapse

HF Group engineered a sharp improvement in funding efficiency:

• Weighted deposit rate fell from 6.3% to 4.9%
• Interest expense dropped by KSh 593 million ($4.6m)
• Net interest income surged 63.8% to KSh 4.36 billion ($33.5m)

This represents the strongest NII expansion in the group’s history

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Efficiency Gains—But Still Work to Do

Metric	FY2025	FY2024
Cost-to-Income Ratio	75.9%	89.5%
Operating Expenses	KSh 4.69bn ($36m)	KSh 3.74bn ($28.7m)

While the 13.6 percentage point improvement is material, the ratio remains above the 60–65% benchmark for efficient mid-tier banks.

Translation: Turnaround achieved, optimisation still pending

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Capital Strength and Regulatory Upgrade

Core capital reached KSh 10.15 billion ($78 million) following a KSh 5.99 billion ($46 million) rights issue, which was oversubscribed by 38.3%.

This triggered a key milestone:

Reclassification of HFC Bank (subsidiary) to Tier II status by the Central Bank of Kenya in August 2025

Liquidity remains robust at 51.5%, well above regulatory minimums.

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Graph Insight: Profit vs Asset Reallocation

• Profit growth chart → reflects treasury-driven earnings expansion
• Asset mix trend → highlights shift from loans to securities

(Insert graph visuals alongside tables in print layout)

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Subsidiaries: Supporting Earnings Diversification

• HFDI (Property Arm):
  • PBT: KSh 340m ($2.6m)
  • Collections: KSh 3.5bn ($27m)
  • Exit from legacy projects cleans up balance sheet
• HFBI (Bancassurance):
  • Gross premiums: KSh 787.5m ($6.0m)
  • PBT: KSh 82m ($0.63m)
  • Award-winning customer-centric model

These units are gradually transforming HF into a multi-income financial services platform.

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Investor Red Flag: Dilution and Dividend Absence

Despite record profits:

• EPS fell to KSh 0.75 (≈ $0.0058) from KSh 0.90
• No dividend declared (8th consecutive year)

This highlights a key tension:
Profitability recovery vs shareholder return delay

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Forward Guidance: Aggressive Growth Outlook

Management has guided for KSh 2.49 billion ($19.1 million) PBT in 2026, implying:

~55% growth trajectory

If achieved, HF Group would transition from turnaround to high-growth phase.

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Strategic Interpretation: A Textbook Balance Sheet Pivot

HF Group’s recovery is built on three pillars:

1. Treasury Dominance – monetising government bond yields
2. Cost Discipline – lowering funding costs aggressively
3. Capital Strengthening – rights issue + regulatory upgrade

This positions the group as:
a yield-driven, liquidity-strong financial institution

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Investor Takeaway: Recovery Complete, Re-Rating Pending

HF Group has clearly moved:

From losses → profitability
From credit risk → sovereign yield
From weak capital → regulatory strength

However, for a full market re-rating:

• Dividend reinstatement remains critical
• Cost efficiency must improve further
• Loan book growth must normalise