Banks defy gloom to post record profits

By James anyanzwa and jackson okoth

A glimpse into the financial results of commercial banks in the first six months of this year shows an industry that has defied a hostile business environment to remain above the water.

While players in the manufacturing, trade, oil marketing or wholesale and retail have been hit by an expensive credit environment; commercial banks appear to have weathered the storm.

“The deposit-lending spreads is still remain quite healthy in the Kenyan market, hovering at 11.87per cent in the first half of 2012 and this will continue to support banks’ balance sheet business going forward,” said George Bodo, an equity analyst.

He adds that prevailing trends when banks are still making profits will continue into the second half of the year with the only underlying downside being the erosion of borrowers’ credit profile, hence impacting on the loan book quality.

This quantum will be largely dependent on the ability of banks to recognise any significant deterioration in the risk profile of borrowers and employ appropriate collateral management strategies.

“There is still a lot of cyclicality in the global macro dynamics with the constant churn of negative news across the Atlantic being a major risk; so in effect, we still expect a cautious monetary environment in the second half of the year,” said Bodo.

A look at financial statements of commercial banks shows defiance to harsh economic environment. Most have posted double-digit growth in profitability during the six months period ended June 30.

Most lenders returned more than 10 per cent growth in pre-tax profit save National Bank of Kenya (NBK) whose profit before tax (PBT) fell by 17 per cent during the period under review.

High interest rates

With interest rate regime proving unfavourable big banks capitalised on cost rationalisation and transaction-based income to stay put.

Kenya Commercial Bank (KCB) Group was the most profitable lending institution. Its half-year pre-tax profit jumped 48 per cent helped by increased transaction-based income and improved performance by its regional subsidiaries.