Commercial banks’ profits have soared to Sh90 billion in the 10 months to October, surpassing the lenders’ performance for the whole of last year and putting the industry within reach of the Sh100 billion mark.
The strong growth in the bank’s profitability underlines their resilience and ability to ride out harsh economic times characterised by high inflation and interest rates.
Last year, the industry made total pre-tax profits of Sh89.5 billion.
Analysts attributed the profit growth to increased lending in the second half of the year, high interest rates and improved performance by regional subsidiaries.
“The rate cuts in the second half have allowed for credit growth which is expected to accelerate and the subsidiaries are doing quite well,” said Mwenda Rarama, a research analyst at Kingdom Securities.
The lenders’ performance was weighed down by high interest rates demanded by depositors and slow uptake of loans owing to the high cost of borrowing for most of the year.
The decision by the Central Bank to cut interest rates after the stabilising of the shilling and the inflation rate has given the banks headroom to grow their loan books at a faster pace. In the month between September and October, the lenders loaned out Sh20 billion growing their total loan books to Sh1.34 trillion.
The growth was, however, accompanied by an increase in defaults as the gross non-performing loans rose to Sh62 billion from Sh60.7 billion at the end of September.
Deposits with the banks rose to Sh1.73 trillion.
“The CBK has been lowering its (policy) rate and banks are taking cue but some companies are still holding guard because of the upcoming elections,” said Vimal Parmar, the head of research at Kestrel Capital.
He, however, noted that the banks benefited from the volatility of the shilling in the latter part of 2011, indicating that the full-year performance may not grow as fast.
Banks have been accused of reporting “abnormal” profit growth at the expense of other segments of the economy. Thirteen listed firms have already issued profit warnings this year, with high financing costs being a major contributor to their woes.
“This may not augur well with other investors who feel that the financing costs in the country are too high. That is why we wanted the Donde Bill because banks have a monopoly of managing their interest rates,” said Dr Samuel Nyandemo, an economics lecturer at University of Nairobi.
Outcry during the high interest regime had seen MPs attempt to regulate the sector arguing that it was earning huge profits at the expense of borrowers. Notably, during the period enjoyed higher margins since they increased lending rates at a faster pace than the deposit rates.
The lenders have argued in defence that banking business is capital intensive and the shareholders have to be rewarded in equal measure. Bank shareholders have shown confidence in their companies’ performance by injecting additional capital to fund growth plans and comply with regulatory requirements.
Despite the high industry profits some banks have been suffering under the weight of high deposit expenses. Ecobank Kenya, UBA Bank and Equatorial Bank posted losses for the nine months to September, with Ecobank recording over Sh900 million in losses. National Bank and some of the small lenders recorded a drop in profits but the performance of the large and mid-tier banks lifted the industry.
KCB’s net profit grew 45.6 per cent to Sh9.3 billion in the period to September. Equity Bank’s earnings were up 13.8 per cent to Sh8.3 billion, StanChart’s was up 66.3 per cent to Sh6.4 billion while Barclays recorded 2.2 per cent growth to Sh6.2 billion and Co-operative Bank went up 23.2 per cent to Sh5.9 billion.
This means that the five large banks contributed more than half of the industry total as at the third quarter.
Citibank analysts had earlier raised concerns that the industry could be overstating its profits, arguing that its performance was not in line with the macro-economic environment.
Some of the questions raised by the analysts were on the sufficiency of the amounts set aside as provision for bad loan and how the banks were treating their government securities.