Banking sector sustains strong profitability trend in first quarter

Banking sector sustains strong profitability trend in first quarter

Kenya: The banking sector registered Sh33.42 billion pre-tax profits at the end of March, a marginal increase of 0.4 per cent from Sh33.28 billion recorded in the quarter ending December 2013.

The industry’s profit before tax for the quarter ended March 2013 stood at Sh28.2 billion representing an increase of 14.2 per cent from Sh24.7 billion registered in the first quarter of 2012. During the same period, size of assets stood at Sh2.4 trillion while loans and advances amounted to Sh. 1.4 trillion.

The deposit base stood at Sh1.8 trillion while profit before tax amounted to Sh28.2 billion as at March 31, 2013, according a Central Bank of Kenya (CBK) report on developments in the banking sector for the quarter ended March 31, 2014.

The report indicates that total expenses also decreased by 2.4 per cent from Sh62.94 billion in the December 2013 quarter to Sh61.46 billion during the period to March.

On an annual basis, the profitability of the sector increased by 18.4 per cent from the Sh28.2 billion recorded in March 2013 to Sh33.4 billion in March 2014.

Interest on loans and advances, fees and commissions and Government securities were the main sources of income accounting for 58.8 per cent, 19.1 per cent and 15.2 per cent of total income respectively.

On the other hand, interest on deposits, staff costs and other expenses were the key components of expenses, accounting for 32.4 per cent, 28.7 per cent and 23.7 per cent respectively, the report says.

As at end of March 2014, liquid assets amounted to Sh782.6 billion while total liquid liabilities stood at Sh1,995 billion, resulting in an average liquidity ratio of 39.2 per cent, against 38.6 per cent registered in December 2013, which was above minimum statutory limit of 20 per cent.

Deposit base

The banking sector registered enhanced performance with the size of net assets standing at Sh2.8 trillion, loans and advances worth Sh1.7 trillion, while the deposit base was Sh 2.0 trillion and profit before tax of Sh33.4 billion as at March 31, 2014.

Over the same period, the number of bank customer deposit and loan accounts stood at 23.8 million and 3.5 million respectively.

The banking sector’s aggregate balance sheet expanded by 4.4 per cent from Sh2.70 trillion in December 2013 to Sh2.82 trillion in March this year. According to the report, the main components of the balance sheet were loans and advances, government securities and placements, which accounted for 57.8 per cent, 21.8 per cent and 5.2 per cent of total net assets respectively.

The sector’s gross loans and advances grew from Sh1.58 trillion in December 2013 to Sh1.69 trillion in March 2014, translating to a growth of 7.0 per cent. The growth was in nine sectors.

However, Energy and Mining sectors declined as result of higher repayments, which were more than the new loans advanced to the sectors during the period.

CBK says in the new report that deposits were the major source of funding for the banking sector, accounting for 72.3 per cent of total funding liabilities.

The deposit base grew by 5.2 per cent from Sh1.94 trillion in December 2013 to Sh. 2.04 trillion in March supported by branch expansion, remittances, receipts from exports and adoption of alternative channels of delivering banking services such as agency banking model.

The number of bank branches increased by 21 from 1,342 in December 2013.

Equally, the number of bank deposit accounts increased from 21.8 million in December 2013 to 23.8 million during the period under review, representing a growth of 2 million accounts or 9.2 per cent.

Capital levels

The banking sector recorded increased capital levels during the period with total capital growing by 2 per cent from Sh418.2 billion in December 2013 to Sh. 426.6 billion.

Similarly, shareholders’ funds grew by 5 percent from Sh432.2 billion in December 2013 to Sh453.6 billion in March. However, the ratios of core and total capital to total risk-weighted assets decreased from 17.9 per cent and 20.7 per cent to 15.7 per cent and 18.2 per cent respectively.

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