First Community Bank has sold a Sh200 million treasury bond it considered to be non-Shariah compliant, handing the lender an after-tax profit of Sh26.6 million in the first quarter of the year.
The Islamic bank grew its profits after tax by 176 per cent to turn black from a Sh34.9 million loss posted in last year’s first quarter, and a net loss of Sh97.5 million for the year.
The bank’s “other income” rose to Sh62.9 million from Sh2.4 million on a quarter to quarter comparison.
“The bond was sort of violating some of the Shariah regulations,” said Nobert Talam, an officer in the bank’s finance department.
Islamic banks have been pushing for the introduction of Sukuks - Shariah compliant bonds into the Kenyan market to enable them take advantage of the government borrowings like its counterparts.
Of the two Shariah compliant banks in Kenya, both registered in 2007, Gulf African Bank was the first to break even at the end of last year following its investment in a government bond floated last year that was Shariah compliant.
Robert Bunyi CEO of Mavuno Capital said that the bank’s performance was incredible, considering the fact that their market was small and their source of income limited unlike other banks.
“They have made a name for themselves and it is not just about profitability but also stability. They are stable and hence sustainable,” he said.
To open up the spectrum of Shariah compliant investments in the country the government amended the Finance Act to allow the Central Bank to recognize the payment of a “return” rather than “interest” on government securities as is required by Islamic banking.
This year there has not been any Shariah compliant floating which has seen the Gulf African Bank quarterly profits after tax decline by 84.6 per cent to Sh3.9 million from Sh25.9 million posted last year.
Growth in the lender’s loan book by 34 per cent to Sh3.5 billion saw its interest income – referred to as income from financing activities - rise to Sh85.7 million from Sh77.9 million.
It also grew fees and commissions on financing activities to Sh28 million, up from nil last year.
Like other banks, it also benefitted from the volatile shilling, growing its forex income to Sh10.4 million from Sh1.9 million earned inQ1 last year.