Companies

Banks ride on costly loans to grow earnings

kcb

KCB chief executive officer Joshua Oigara during the release of the bank’s 2012 financial results at the Hilton Hotel in Nairobi on February 28, 2013. Photo/DIANA NGILA

Kenya’s top banks rode on expensive loans to boost their profits last year amid sluggish growth in lending.

KCB, Equity, Barclays and Co-operative Bank earnings show that the lenders’ loan books expanded by 5.2 per cent to 19 per cent last year.

The banks, however, saw their interest income from lending rise by 8.8 per cent to 66 per cent, signalling higher interest margins—the difference between deposit and lending rates.

The high interest margins helped the banks maintain profit growth momentum despite a slowdown in lending, with Co-op’s profits rising the fastest.

“Banks have benefited from higher interest margins last year,” said Francis Mwangi, an analyst at Standard Investment Bank.

Commercial banks raised their lending rates to above 24 per cent last year compared to an average of 14 per cent in 2011, helping them to earn higher returns on new and old loans which were re-priced upwards.

The lenders raised their interest rates as cost of deposits rose in reaction to the Central Bank’s move to tighten liquidity from late 2011, with the institutions benefiting from the higher rates amid minimal growth in defaults.

KCB made the biggest profit at Sh12.2 billion last year compared to Sh10.9 billion in 2011, representing an 11.9 per cent growth rate. This came as the bank’s loan book increased 6.4 per cent to Sh211.6 billion from Sh198.7 billion.

KCB, however, saw its interest income grow 43.6 per cent to Sh33.9 billion from Sh23.6 billion as it benefited from the high interest rates.

The bank said its interest margin stood at Sh10.9 per cent last year, up from 10.1 per cent in 2011. KCB raised its dividend payout to Sh1.90 per share compared to Sh1.85 in 2011.

Equity Bank posted the second largest net profit at Sh12 billion last year compared to Sh10.3 billion the year before, representing a 16.5 per cent growth. This came as its interest from loans rose 66 per cent to Sh27.4 billion as its loan book expanded by 19.1 per cent to Sh135.6 billion.

Equity enjoyed a net interest margin of 12 per cent last year, with the bank saying its recorded the highest returns in the fourth quarter.

“At 13 per cent as at the end of the fourth quarter, net interest margin has remained at a historically high level after increasing by 20 basis points from the previous quarter,” said James Mwangi, Equity’s chief executive.

Equity raised its dividend to Sh1.25 per share, up from Sh1 in 2011.

Co-operative Bank also rode on a higher net interest margin to post a 45.2 per cent growth in net profits last year, though the bank’s transaction-based income rose significantly.

The bank’s net profit stood at Sh7.7 billion compared to Sh5.3 billion in 2011 as interest from lending increased 60.6 per cent to Sh21.2 billion from Sh13.2 billion.

The fast growth in interest income came as its loan book expanded at a slower rate of 8.7 per cent to Sh119 billion.

Analysts at Standard Investment Bank said Co-op Bank’s net interest margin stood at 10.6 per cent last year, up from 9.3 per cent in 2011. Co-op also rewarded shareholders with a dividend of Sh0.5 per share, up from Sh0.4 it paid in 2011 and 2010.

Barclays’ net profit grew 7.4 per cent to Sh8.7 billion last year, recording the slowest profit growth among the four large banks.

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