Smaller banks realise faster profit growth

Mid and small tier banks that have released financial results have outperformed the big banks in terms of growth.

Ecobank, Chase, HFCK, Family, Prime, Bank of Baroda, Imperial, Consolidated and Oriental Bank have reported increased profit growth beating the seven largest banks by asset size excluding Equity, Co-operative and Diamond Trust Banks.

The smaller banks have posted increases in half-year pretax profits of between 32 and 167 per cent for the larger banks excluding Equity, Co-operative and Diamond Trust have grown between 5 and 19.8 per cent.

Ecobank, ranked the 20th largest by asset size in The Banking Survey 2010, Consolidated, ranked 29th, HFCK ranked 16th and Bank of Baroda ranked 14th posted 167, 145, 54 and 49 per cent increases in half-year profits before tax respectively.

“It is difficult for a large bank to grow incrementally as many have already reached their peak” said Ecobank Managing Director Anthony Okpanachi.

“Smaller banks have a smaller asset base and any change will translate to a larger percentage increase in assets” said Mr. Vimal Parmal an analyst at Kestrel Capital.

Growth in smaller banks has been helped by new branches that were opened during the year and the strategy is paying off as they get into new markets.

Chase bank ranked the 22nd largest by asset size posted an 82 percent rise in pretax profits.

Mr. Michael Laxmi, Marketing Manager at Prime Bank said, “We opened a branch in Kamukunji and Eldoret as these places have become accessible and there is high traffic in these areas.”

The bank posted a 34 percent increase in profits before tax.

Loans books increase

As a result the banks have also seen their loans books increase on account of an increased branch network, aggressive marketing, a robust economic environment and lower interest rates which have resulted in an increase in net interest income of between 23 and 133 per cent.

Net interest income for Kenya Commercial and Barclays Banks stood at 3.3 and 18.4 per cent respectively, an amount much smaller than what the smaller banks have posted.

Many of the smaller banks also tend to have more personalized service that is sometimes geared to specific a clientele.

Their smaller size also assists them to be able to manage costs better than bigger banks.