Two commercial banks on Tuesday opened the third quarter reporting season with strong profit growths, signalling yet another three months of increase in earnings for the lenders.
Giro Commercial Bank net profit for July to September trebled to Sh327 million, while Guardian Bank’s net earnings nearly doubled to Sh212 million. The two banks are classified as small-tier lenders, which have traditionally lagged their mid-sized and large counterparts in profit growth.
Their robust bottom-line growth is therefore a strong indication of improved performance for the whole industry.
Giro Bank’s profit growth was driven by a Sh210 million rise in total income for the lender, on the back of increased interest earnings from government securities.
Guardian Bank’s double-digit profit growth from Sh110 million in the third quarter of last year to Sh212 million was also boosted by higher interest income from treasuries.
The two lenders, while recording lower interest income from loans, benefited from lower interest expenses on customer deposits.
Giro Bank saw the interest paid as at September 2013 reduce by Sh293 million, while that of Guardian bank was down by Sh267 million, compared to September 2012.
Investors anticipating good third quarter results from banks have been driving up demand for the shares of listed lenders, pushing up most bank stocks to near one-year highs in the past three weeks.
Market observers say that investor attention has been drawn to the prospects of better returns from their shares as a result, with demand for the larger cap bank shares coming especially from foreign investors.
Sterling Capital research analyst Maureen Kirigua said that this increased activity in bank stocks has been the main catalyst for the boost in their share prices.
“Foreigners have been shifting funds to frontier markets, and in the Kenyan stock exchange there is expectation of improvement in banking sector results in the third quarter because of the general good performance of the economy. Lower interest on deposits also signals higher earnings expectation,” said Ms Kirigua.
“Foreign investors have paid up to unlock block shares from the local side, driving the counters to highs of Sh50 and Sh36.25 respectively,” said Kestrel Capital research on KCB and Equity banks.