Commercial banks rake in Sh76b in first half of 2015

Commercial banks have raked in Sh76 billion in profits in the first half of the year, even as they stare at significant defaults from the tourism sector.

A new report by the Central Bank of Kenya (CBK), the sector regulator, shows that cumulative unaudited pre-tax profits for the six months ended June 30, 2015 stood at Sh76.9 billion compared to Sh71 billion last year. This translates to an eight per cent increase.

However the report, credit officer survey published every quarter, notes that most banks expect a beating from the tourism sector in the third quarter of the year.

"For the third quarter of 2015, most banks expect the levels of non-performing loans to generally remain constant in ten of eleven economic sectors," the second quarter Credit Officer Survey released yesterday reads in part.

"However, banks foresee increasing NPLs in Tourism sector. Some respondents quote spillover of delinquencies attributed to the previous spate of insecurity in the country and previous adverse travel advisories as factors for increased NPLs in Tourism Sector," the report adds.

But the report notes that some respondents are however optimistic that in the coming months tourism will recover after the lifting of adverse travel advisories by United States (US) and the United Kingdom (UK).

"This expectation is also supported by the fact that we are currently in the high season for tourism sector in Kenya, which runs from July to December," the report adds.

The survey found that demand for credit generally remained constant in seven economic sectors and increased in four economic sectors in the quarter ended June 2015.

Demand rose in the mining, energy, financial services, manufacturing, transport, agriculture and tourism.

Meanwhile trade, building, real estate, personal or household are the four economic sectors that recorded increased demand for credit.

About a quarter of the banks surveyed indicated that the cost of borrowing and recent upward review of Central Bank Rate had the most impact in reducing demand for credit.

But it is the building and construction, tourism, real estate and transport sector have took the biggest beating from the rise in the cost of loans.

"Compared to Quarter 1 of 2015, credit standards were slightly tightened for building and construction and mining sectors by a margin of two and three per cent respectively," the report says.

But increased competition prevented many banks from increasing their rates much further citing the fear of losing customers to banks with less stringent credit standards.

The survey, conducted in July 2015, targeted senior credit officers of all 42 operational commercial banks and one mortgage finance company.

Charterhouse Bank Ltd, which remains under statutory management, was excluded from the survey. All the 43 institutions responded.

Some respondents predicted that the increase of the lending rates as one of the factors likely to increase the risk of financial distress going forward.