Harsh environment slows down banks' performance

By James Anyanzwa and Jackson Okoth

A tight credit market is slowly impacting negatively on commercial banks as they battle a bulging interest expense on their loan books.

Although a peek into first quarter results shows some resilience, prevailing high interest rates of up to 32 per cent in most banks is discouraging borrowers from seeking credit. They have turned to alternative options such as savings and credit co-operative societies.

Kenya Commercial Bank (KCB) and Equity Group and NIC Bank are among the first to release their first quarter results under thin credit environment that is hurting credit providers.

Regional subsidiaries

KCB Group announced a 35 per cent growth in pre-tax profit for the first three months of this year boosted by revenues from diversified product offering and major turnaround of its regional subsidiaries.

The country’s largest bank by branch network, posted a profit before tax of Sh3.4 billion compared to Sh2.4 billion reported over the same period last year. This is compared to Equity, which posted a 29 per cent increase in pre-tax profit; up to Sh3.73 billion from Sh2.9 billion in the financial year ended December 31st, 2011.

While releasing the results yesterday KCB Group chairman Peter Muthoka raised concerns over the difficult operating environment and macroeconomic challenges but pointed out that the performance was in line with the board’s expectations for this year. " We are confident that the continued implementation of our transformation initiatives during the last 12 months will spur the group’s strong performance for the rest of the year," said Muthoka

KCB Group’s total operating income increased 30 per cent to Sh10.3 billion from Sh7.9 billion while total operating expenses grew 28 per cent to Sh6.4 billion from Sh5 billion in a similar period. "The impressive first quarter results are attributed to the ongoing product and services innovations that the bank continues to implement seamlessly across the group," said Martin Oduor-Otieno, KCB Group chief executive

The bank’s subsidiaries contributed to the Group’s bottom line by registering Sh0.4 billion in profits before tax compared to Sh0.2 billion in a similar period last year.

Equity posted a 29 per cent increase in pre-tax profit even though loan uptake slowed down due to prevailing high interest rates.

"The unique business model has proven resilient to the challenging business environment," said Dr James Mwangi, Equity Bank Group chief executive officer.

The Bank’s total income rose by 38 per cent to Sh9.01 billion from Sh6.52 billion while total interest expenses rose to Sh5.31 billion from Sh3.65 billion for the period under review.