Government lending earns banks Sh122b
Banks pocketed at least Sh122 billion from the State coffers last year as they rushed to profit from a cash-hungry Government.
The income generated from lending to Government reflected an increase of 14 per cent from Sh107.1 billion that the lenders received in the previous year, according to an analysis by The Standard.
The seven big banks were the main beneficiaries of the windfall, sharing out Sh79.3 billion, or 67 per cent of the total haul, among themselves.
The tier one banks saw their investment in Treasury Bill (T-bills) and bonds rise by a staggering Sh10 billion during this period, with Equity Bank pocketing Sh16 billion closely followed by Diamond Trust Bank with Sh13 billion while KCB Group’s share of interest income stood at Sh12.9 billion.
Standard Chartered Bank, on the other hand, received Sh12 billion, Co-operative Bank (Sh9.8 billion) while Barclays and Commercial Bank of Africa each received Sh7.4 billion.
Mid-tier banks were the other biggest beneficiaries of Government lending, receiving Sh28.6 billion last year compared with Sh26.3 billion in 2017.
Although Equity’s haul was more than what all the 21 tier-three banks received combined, the small banks saw their share of income from Government increase by almost a third to Sh14 billion, up from Sh11 billion previously.
The data showed that banks’ profitability has been shored up by State borrowing, with figures from the Central Bank of Kenya (CBK) showing that their profit after tax increased by 12.4 per cent to Sh152.3 billion from Sh135.5 billion in the previous year.
Even as they have moved their cash to Government papers, banks have shunned small businesses and individuals, arguing that the interest rate controls introduced in 2016 made it impossible to price such risky borrowers.
CFC Stanbic Bank’s Regional Economist Jibran Qureishi told The Standard in a past interview that there was a need to review the interest rate controls which he insisted have made banks to put their money in the safer Government securities.
“They keep on saying banks are making money, but they don’t look at ‘how’ banks are making money,” said Mr Qureishi, adding this is mainly by lending to Government.
However, proponents of interest rate controls have argued that denying small businesses credit is just a way for the banks to blackmail policymakers to scrap the 2016 legislation that currently puts a ceiling on interest charged on loans at four percentage points above the Central Bank Rate of nine per cent.
The legislators are also convinced that it is not the law that has stemmed the flow of credit to small and medium-sized enterprises (SMEs), but banks themselves which might have colluded to withdraw credit to the so-called high-risk borrowers such as SMEs and individuals to push their narrative against the rate cap regime.
“It is not the law that is causing that (reduced credit to SMEs), it is the cartel-like behaviour by banks,” said Kiambu Town MP Jude Njomo, who sponsored an amendment on the Banking Act thus the introduction of a cap on interest rate.
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Government LendingTreasury BillEquity Bank