A man reads exchange rates at Nairobi based Goldfiled Forex Bureau where the dollar traded at Sh83 yesterday. CBK allayed fears that the surge in lending rates would constrain credit demand. DIANA NGILA
Banks have made Sh80 billion pre-tax profits in the 11 months to November, surpassing total profits by the industry for the whole of last year.
Central Bank of Kenya (CBK) said the earnings, which are Sh5.71 billion higher than the 2010 profit, are an indication that the recent surge in the cost of loans will not dent the lenders’ performance.
“We do not anticipate any significant risk to the banking industry given the performance so far. The industry realised profit before tax of Sh80.01 billion for the period ended November 2011. This was 7.7 per cent above the Sh74.3 billion realised in year 2010,” said CBK in an e-mail response.
The regulator allayed fears that the surge in lending rates by more than 10 percentage points in less that three months would constrain credit demand and lead to losses.
CBK said that it expects banks to report profits in the fourth quarter of this year. Compared to the first 11 months of last year, this year’s pre-tax profit is 21.2 per cent higher.
Fears of a steep drop in sector profits emerged after lending seemed to have flattened between September and October, as the Monetary Policy Committee (MPC) raised the Central Bank Rate in consecutive sittings to 18 per cent.
In order to curb pressure on the exchange rate and inflation, the MPC has increased its policy rate in five consecutive sittings beginning September, including a major hike of four percentage points in October and 5.5 percentage points in November.
This made borrowers’ access to cash expensive as interbank and discount window rates soared to beyond 30 per cent at some point. The deposit rates have also risen in the past few months, raising the cost of funds for banks.
CBK also said economic activity in the third and fourth quarters was strong enough to have sustained profit growth, although the Kenya National Bureau of Statistics said this year’s third quarter growth was the lowest in two years.
“From these figures and watching the economic activities in the last quarter, banks face minimal risk,” said the CBK.
The rise in interest rates has raised concern among investors eyeing the country’s banking industry. In a recent advisory to clients investing in Sub-Saharan African, J.P. Morgan analysts said they preferred Nigerian to Kenyan banks because the sharp rise in local interest rates would cause banks to experience lower credit growth, margin pressure, and risks of capital losses on bond portfolios.
“We continue to prefer Nigerian banks over Kenyan banks as we expect slower credit growth and impairments more pronounced among Kenyan banks,” said the analysts. For the nine-month period ending September, total profitability of the industry stood at Sh63.5 billion. StanChart analysts, in a recent report, said that the restructuring of loans, in view of the higher interest rates, would reduce the risk to bank profitability.
The report said that with “voluntary restructuring of client loans — increasing the tenor of loans in order to reduce the likelihood of default — a significant impact is not expected” on bank profitability.
Top five banks
In four of the top five banks, profitability followed an upward trend. Equity Bank was the top performer in the nine-month period ending September this year when it hit Sh7.3 billion, up from Sh5.1 billion in the same period last year — a 43 per cent increase.
During the nine months to September, Kenya Commercial Bank saw a 42 per cent increase in post-tax profit to Sh6.4 billion while Cooperative Bank’s profit rose 22 per cent to Sh4.5 billion compared to the same period last year.
Standard Chartered recorded a Sh3.86 billion post-tax profit in the nine-month period to September compared to Sh4.3 billion in the same period last year — a 10 per cent or Sh440 million reduction in earnings.
Barclays Bank also had its after profit go up by Sh612 million to Sh6.1 billion in the first nine months of this year.
