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.

The Group’s profit before tax (PBT) for the six-month period to June 30 swelled to Sh8.5 billion from Sh5.7 billion in a similar period last year with regional subsidiaries, save Burundi, contributing Sh600 million to the bottom-line.

This is despite a relatively unstable macro-economic environment characterised by high interest rates across the East African Community (EAC) member states and slowed economic growth particularly in Kenya and Rwanda during the first half of this year.

“The growth in income reflects higher earnings on our good book as well as increase in business from retail, corporate and mortgage segments,” said Martin Oduor-Otieno, KCB Group Chief Executive.

Similarly Co-operative Bank Group’s pre-tax profit rose 21 per cent to Sh5.01 billion from Sh4.14 billion in a similar period last year helped by a significant expansion in transaction-based income.

Chief Executive Gideon Muriuki attributed the improved profitability to an aggressive cost rationalisation programme. “We continued with our strategy of managing costs focusing mainly on staff rationalization which saw the redeployment of staff to the newly opened branches,” said Muriuki, adding that the management is consistently monitoring and reviewing other expenditures to ensure there are no cost ‘overruns’

Cost management

Barclays Bank of Kenya (BBK) recorded 18 per cent growth in profit even as the bank’s management sold some treasury bonds to compensate for the shrinking deposit base. The bank’s profit before tax increased to Sh6.31 billion from Sh5.34 billion in a similar period last year while customer deposits fell five per cent to Sh122.48 billion from Sh128.43 billion.

Managing director Adan Mohamed attributed the bank’s profitability to growth in income and prudent cost management through investment in technology. “The commendable results arise from the bank’s ability to continue with its sustainable growth momentum achieved over the years,” he said.

However NBK’s profit declined 17 per cent to Sh912 million from Sh1.1 billion in a similar period last year over what the management attributed to the high interest rates.