Imperial Bank’s expansion plan has helped to tap cheaper customer deposits which helped the mid-sized lender to post a 58 per cent growth in third-quarter net profits.
The bank earned after-tax profits of Sh668.3 million in the nine months to September, boosted also by increased lending to government.
“The increasing branch footprint and overall efficiency has led to an increase in customer loyalty and greater uptake of our services hence additional revenue,” said the bank’s managing director, Abdulmalek Janmohamed.
Imperial Bank increased its holding of government securities to Sh4.4 billion from Sh2 billion, tripling earnings from the debt papers to Sh426 million. The bank paid depositors total interest amounting to Sh604 million, down from Sh973 million last year.
Mr Janmohamed said the firm was benefitting from a wider branch network that is helping to rake in cheap deposits. It recently opened its thirteenth branch in Changamwe, with more planned for next year. Customer deposits grew from Sh11.5 billion to Sh14 billion.
While its loan book grew from Sh9.4 billion to Sh11.4 billion, interest earnings fell by Sh172 million to stand at Sh1.73 billion. The bank more than tripled its loan loss provision to Sh112 million in the period under review.
The lender managed to lower its cost to income ratio to 50.9 per cent, down from 55.5 per cent last year, indicating a greater efficiency in driving earnings.
Total operating income rose from Sh1.36 billion to Sh1.94 billion, offsetting a rise of Sh146 million in total operating expenses to reach Sh991.3 million. Shareholders of the bank, ranked at number 19 in terms of total asset base, will share a proposed Sh200 million as dividend for the period ending September, 2010.
Both small and big banks have seen a high growth in earnings this year, attributed to economic resurgence that is pushing up deposits and lending as businesses and individuals increase investments and consumption.
In the second quarter, the economy grew by 5.4 per cent compared to a growth of 4.4 per cent in the first quarter. The growth was led by the agriculture, manufacturing, and financial services sector that contributed 60 per cent to the domestic output in the period under review. The increased economic activity has helped the lenders push more loans to the market.
According to the Central Bank of Kenya third-quarter sector report, pre-tax profits in the banking sector for the nine months to September stood at Sh53.2 billion, overtaking the 2009 full year pre-tax profits of Sh48.9 billion by 8.8 per cent.
Gross loans and advances increased from Sh828.9 billion in the second quarter to Sh878.8 billion in the third quarter, pushing pre-tax profits up by 2.2 percentage points to reach Sh18.3 billion.
Household borrowing, trade, and real estate were the main drivers of the increased loans uptake by Sh12.8 billion, Sh11.6 billion, and Sh8.2 billion respectively. Household borrowing accounted for the largest loan stock of Sh248.4 billion by end of September, meaning retail traders and manufacturers of goods are likely to benefit from increased consumer spending.