KCB’s profit growth sends mixed signals

Financial Standard

By Jackson Okoth

Kenya Commercial Bank (KCB) Group has announced a five per cent increase in pre-tax profit for the first quarter of the year, raising hopes that the banking industry may have seen its worst.

However, market pundits are closely monitoring the performance of other banks in the first quarter as the sector reduces its lending appetite, in the light of a depressed economy, projected to grow at less than two per cent this year.

Figures released by the bank indicate that in the first quarter, KCB pre-tax profit rose to Sh1.73 billion from Sh1.65 billion in a corresponding period last year.

Mr Peter Muthoka, the KCB chairman, attributes the marginal increase in quarterly results to the slow momentum associated with every first quarter of any year.

"The first quarter is always slow as businesses re-orientate themselves to the realities of a new year, yet expenses have to be incurred. We expect to see a significant pick up in our performance in the second and third quarters as the business environment improves," said Muthoka.

Kenya Commercial Bank posted a five per cent increase in profit in the first quarter, but pundits are closely watching the performance of other financial institutions.

As the credit market shrinks, KCB’s interest income increased by 24 per cent from Sh3.3 billion to Sh4.2 billion in the period under review due to growth in loans and advances.

At the same time, interest expense rose by 89 per cent from Sh0.4 billion in the first quarter of last year to Sh0.7 billion in the last quarter.

This increase in interest expense is attributed to higher interest rates and increase in deposits.

During the quarter, foreign exchange income went up by 37 per cent to Sh646 million from Sh470 million. Fees and commissions went up by 16 per cent to Sh1.35 billion up from Sh1.16 billion.

"The increase in fees and commissions and foreign exchange earnings reflects the growth in the volumes of our business and will, together with interest income, underpin our performance for the remainder of the year," said KCB Group Chief Executive Martin Oduor-Otieno.

"We continue to invest in our business as well as funding network expansion to enhance our ability to provide quality service to our customers," said Oduor-Otieno.

Provisions for bad and doubtful debts in the quarter remained flat compared to same period last year.

The bank’s assets were up by 30 per cent in the first quarter compared to the corresponding period last year moving up from Sh131.6 billion to Sh171.1 billion.

loans and advances

Net loans and advances climbed by 47 per cent from Sh67.4 billion in first quarter of last year to Sh.99.2 billion in the last quarter as the bank marketed aggressively for good loans.

Deposits increased significantly by 19 per cent, from Sh108.8 billion in the first quarter of last year to Sh.129.2 billion in the quarter under review.

"Our liability strategy is to focus on optimising collection of low cost funds through our wide branch network to finance our growing loan book," said Oduor.

Shareholders equity went up by 57 per cent during the period to hit Sh22.5 billion from Sh14.4 billion the previous year; due to retention of earnings and proceeds from the second rights issue concluded last August.

The bank remained strong on prudential ratios with core capital to total deposit liabilities improving from 10.4 per cent in March 2008 to 14.2 per cent in the last quarter (CBK minimum is 8per cent).

Total capital to total risk weighted assets stood at 15.4 per cent (CBK minimum is 12 per cent) while liquidity was at 29.3per cent (CBK minimum is 20 per cent).

The bank’s focus remains being a formidable regional player and to establish a strong platform for a Pan-African expansion from 2010.

"Our target for this year in terms of channel expansion is 70 new branches and 200 new ATMs across the region so as to take our services closer to the target markets," said Oduor.

KCB is a listed firm in Tanzania and Uganda with plans to enter the Rwandan bourse this year. Its regional expansion agenda include opening business in Burundi this year.

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