By James Anyanzwa
Nairobi,Kenya:Super profits: Going by the latest trend by some of the country’s big banks, the banking sector performance for the first quarter of 2012 appears to be rosy.
Commercial banks survived a slowdown in business activity to post double-digit growth in profitability during the first three months of this year.
This is despite election jitters that saw many investors and businesses suspend investment decisions while households shun banking halls.
The growth in earnings, however, comes against a backdrop of a high interest rate regime, with the lending rates currently standing at 17.78 per cent, according to data from the Central Bank of Kenya.
Last week, central bank lowered its policy lending rate—Central Bank Rate— by 100 basis points to 8.5 per cent from 9.5 per cent in a move aimed at prompting commercial banks to lower their lending rates to the private sector. Going by the latest trend by some of the country’s big banks, the banking sector performance for the first quarter of 2012 appears to be rosy.
Amongst the big banks that have released their first quarter financial statements include Kenya Commercial Bank (KCB) and Equity Bank Group whose profit before tax (PBT) grew by 26 per cent and 21 per cent respectively.
“On the operating environment, Kenya witnessed a smooth leadership transition in the last three months, good rains, a stable inflation and a favourable exchange rate; an indication that as we look ahead into the next nine months, the economic prospects look strong,” said Musa Ndeto, Chairman, KCB Group.
Overall inflation was down to 4.1 per cent in March 2013 compared to 16.7 per cent in March 2012 providing a good environment for business.
During the period KCB outperformed the Nairobi Securities Exchange (NSE) 20 index by 120 per cent. The number of agents under the agency banking model increased from 4,627 in 2012 to 5,035 with five per cent of all the retail transactions done through the agency. The number of registered mobile banking users also increased from 652,384 in 2012 to 821,235 as at end of March 2013 with an estimated 10 per cent of its retail transactions done through Mobile Banking.
During the period, the group’s net interest income grew to Sh7.4 billion from Sh7 billion while Foreign exchange income increased 27 per cent to Sh1 billion from Sh830 million.
According to Central Bank most banks expected the levels of non-performing loans to increase in the first quarter of 2013 due to expected rise of political risk arising from March 2013 elections. During the period, banks expected to intensify their credit recovery efforts in almost all the sectors.
According to central Bank’s credit survey report the banking sector’s un-audited pre-tax profit for the year 2012 grew 20 per cent to Sh107.68 billion from Sh89.57 billion in the previous year.
Gross loans expanded by 12 per cent to Sh1.36 trillion from Sh1.21 trillion in a similar period.
Deposits grew by 14 per cent to Sh1.76 trillion from Sh1.54 trillion while total shareholders funds surged 21 per cent to Sh362.87 billion from Sh299.49 billion.
In year 2012, demand for credit increased in 9 sectors out of the 11 sectors. Demand for credit from the Mining and Quarrying and Trade sectors remained unchanged in the year. The survey indicated that decrease in the cost of borrowing and the drop in the Central Bank Rate (CBR) were the greatest factors that led to an increased demand for credit in the year. In year 2012, banks eased credit standards for Agriculture, Manufacturing and Trade sectors. In all the other sectors, the banks credit standards remained unchanged.
The drop in CBR from 18 per cent in June 2012 to 9.5 per cent in January 2013 and decrease in the cost of borrowing had the most significant impact in increasing demand for credit. KCB Group’s first quarter re-tax profit climbed to Sh4.3 billion from Sh3.4 billion buoyed by what the management said was improved operational efficiency, profitability from international business and increased customer deposits.
“This impressive performance shows continued momentum in the growth of our business and is consistent with the Bank’s financial performance and the long term view of our growth strategies replicated in all the markets in which we operate,” said Ndeto. International business grew 51 per cent from Sh400 million in March 2012 to Sh600 million contributing 14 per cent to the Group’s profit.
“Looking ahead, we are optimistic that the economy is set for growth. There is a deliberate effort by the Bank to grow the micro-small and medium enterprises targeting youth and women by providing them with financial access and opportunities,” said Joshua Oigara, Chief Executive, KCB Group.
“Our regional expansion into Tanzania, South Sudan, Uganda, Rwanda, and Burundi has created more employment, business and service opportunities. Our strategy is to ensure that our customers across Eastern Africa have seamless access to our banking products and services at the branch, on their mobile telephones and Internet networks.”
Equity Bank Group’s pre-tax profit rose to Sh4.5 billion in the three-months to March 31 from Sh3.7 billion in a similar period last year. Total income went up 13 per cent to Sh10.2 billion from Sh9 billion while operating costs increased 10 per cent to Sh5 billion from Sh4.5 billion. Interest income advanced 9 per cent to Sh7.9 billion from Sh7.3 billion while interest expense declined 31 per cent to Sh1.1 billion from Sh1.6 billion. However, Group’s total branch transactions dropped to two million from 2.4 million while Automated teller Machine (ATM) transactions fell to 2.8 million from three million transactions in a similar period. On the contrary, transactions from Agency banking, which is being touted as the bank’s key growth driver, grew to 2.2 million from 1.4 million transactions.
