Markets

Banks post Sh81bn in H1 profit before tax on costly loans, T-bills

BANKS

Banks turned to investing in government securities turning away from the risky individual lending which has been piling up bad loans. PHOTO | FILE

Summary

  • Banks collectively posted a total of Sh81.2 billion in profit before tax in the six months up from Sh76.9 billion last year.
  • Profitability of banks has been topical in recent days as Parliament successfully pushed for regulation of interest rates.
  • Local banks have been accused of overpricing loans to drive profits at the expense of the rest of the economy.

Commercial banks profit rose by 5.6 per cent in the six months to June riding on loftier rates and higher treasuries’ returns even as borrowers increasingly sought alternative funding from saccos and microfinance banks.

Banks collectively posted a total of Sh81.2 billion in profit before tax in the six months up from Sh76.9 billion last year, shows data from Central Bank of Kenya (CBK).

“The growth in profits were mainly attributable to increased investment in government securities by commercial banks and increased lending rates,” said CBK in a report released Tuesday.

Profitability of banks has been topical in recent days as Parliament successfully pushed for regulation of interest rates.

Kenyan banks have been accused of overpricing loans to drive profits at the expense of the rest of the economy.

At a time commercial banks were trying to fight off regulation of interest rates CBK said the lenders increased interest rates to 18.1 per cent from 17.8 per cent in March.

The high interest rate regime resulted in slower lending with the industry loan book expanding by 1.8 per cent in the three months to June compared to 6.7 per cent growth in a similar period last year.

In the three months between March and June the banks loaned out a total Sh50 billion to push the industry loan book to Sh2.27 trillion.

The CBK noted the bulk of the new borrowing was to other lending institutions — microfinance banks and saccos — signalling a move away from banks.

“Financial services sector recorded the highest increase in demand for credit with an increase of Sh34.2 billion attributed to increased lending by banks to microfinance banks and saccos to fund their activities within the quarter,” said the CBK.

Customer savings with the banks increased at a fast pace of 2.6 per cent to Sh2.62 trillion.

Banks turned to investing in government securities turning away from the risky individual lending which has been piling up bad loans.

Total non-performing loans in the industry increased to 8.4 per cent of loans issued from 7.7 per cent in March. This means that loans worth Sh190 billion had not been serviced for a period exceeding three months compared to Sh170 billion in March.