Barclays Bank profit rises 16 per cent on improved lending

Barclays Bank of Kenya (BBK) half-year earnings grew 16 per cent on the back of improved lending with net interest income increasing to Sh8.9 billion from Sh7.3 billion.

The bank on Tuesday announced a net profit of Sh4.2 billion compared to Sh3.6 billion posted in first half last year, with earnings from loans to customers, government paper and deposits held in other banks driving growth.

The lender’s income from customer loans grew by 17.7 per cent to Sh7.3 billion with a total of Sh101 billion having been lent out during this period compared to Sh91.6 billion the previous year.

This performance came at a time when commercial bank lending rates remained high after shooting to above 25 per cent towards the end of last year from a low of 14 per cent in January 2011 as lenders moved to protect margins.

“The macroeconomic environment is recovering from the negative effects experienced when the markets went haywire in the last quarter of last year,” said Adan Mohamed, the BBK managing director.

“Central Bank of Kenya interventions are bearing fruit and this is also reflected in our healthier loan book,” added Mr Mohamed, noting that bad debt provisions had decreased to 0.3 per cent of net loans to Sh459 million.

The bank’s lending performance defied the sector trends where expensive credit put off borrowers, with total loans in the industry standing at Sh1.29 trillion after growing a marginal four per cent from March.

The lower uptake of loans slowed down economic activity with the financial services, hospitality, and construction sectors recording major contractions.

However, interventions by the regulator has seen inflation go down to single-digit levels and banks lower base lending rates, which Mr Mohamed says will sustain the bank’s lending performance going forward.

Francis Mwangi, an analyst at Standard Investment Bank, noted that BBK’s improved interest income from loans was partly due to the fact that it had only increased its average interest rate from 14.53 in the first quarter to 14.76 in the second quarter.

“The bank seems intent on cushioning its existing borrowers from the high interest rates as a way of discouraging defaulting as opposed to using the rate to attract customers from rival banks,” said Mr Mwangi.

At the same time, interest earnings from government securities increased from Sh1.3 billion to Sh2.3 billion, a 77.8 per cent growth, despite the bank reducing its share of investment in the instruments.

The bank said that falling proportion of investments in government treasury bills and bonds was a result of redirecting funds to customer assets as well as the bank being liquid enough to allow for the lower investment.

The bank announced a 50 per cent increase in interim dividend payout to 30 cents. BBK’s improved performance placed it third amongst its peers, Equity Bank and Kenya Commercial Bank, who have released their half year results so far.

Two weeks ago, KCB reported Sh6.1 billion in net profits for the six months to June 2012, an increase of 50 per cent compared with the same period a year ago.