Absa Bank Kenya has reported a 14.7 percent increase in net profit to Sh16.9 billion for the nine months ended September on lower provisions for bad debts and cheaper cost of funds.
The subsidiary of South Africa-based Absa Group saw its net income rise from Sh14.7 billion a year earlier.
The lender rode on a 39.6 percent cut in provisions for bad debts and 28.5 percent drop in interest paid to customers to shield its profitability against a drop in interest income.
“Profit after tax grew by 15 percent year-on-year to Sh16.9 billion, supporting a strong return on equity of 24 percent,” said the bank’s managing director Abdi Mohamed.
“Revenue closed the quarter at Sh46.6 billion, a marginal decline compared to last year attributable to lower interest rates margins, which saw our net interest income drop by 5 percent. This was, however, offset by prudent management of the cost of funds,” he added.
Absa’s loan loss provisions fell by Sh3.1 billion or 39.6 percent, resulting in a 13 percent drop in operating expenses covering for lost interest income.
The lower provision was despite the stock of bad loans rising 3.8 percent to 44.3 billion amid a tough economic environment that has seen businesses and individuals struggle to repay their loans.
Absa said the loan provisions have dropped because of debt collection activities especially from corporate borrowers. The lender noted that its small and medium enterprises (SME) portfolio also recorded improved loan repayments.
"Gross non performing ratio has slightly increased due to increased non-performing loans, however this does not result in increased provisions due to sufficiency/cover from securities held," Absa said.
Banks have been cautious in lending to avoid defaults while businesses have shelved borrowing plans due to high interest rates resulting in the industry loan book remaining stagnant.
Absa’s loan book declined to Sh309.7 billion from Sh311.4 billion a year earlier with interest income from loans falling at a faster rate of 19.6 percent to Sh32.5 billion which was attributed to the shrink in loan book accompanied by lowering of lending rates.
The Central Bank of Kenya has been pressuring banks to lower loan prices by cutting its indicative base rate in the last eight meetings held by the monetary policy committee.
The reduction in interest rates saw the bank lower interest paid to customers to Sh9.5 billion for Sh384.3 billion held in deposits compared to Sh13.3 billion paid out a similar period last year when it was holding Sh351.7 billion deposits.
“The decline in interest income from loans and advances was driven by a reduction in yields on loans given the general decline in interest rates,” said Sterling Capital in a note to investors.
“Unlike its peers, Absa has been passing the entire benefit of lower interest rates to its clients and this may prove to be a key positive in 2026 as the bank feels the resultant impact of lower margins in 2025 while other banks may be recipients of the same impact in 2026 once the application of Kesonia gains steam."
Increased lending to the government saw Absa record a 53.5 percent jump in interest from Treasury bills and bonds to Sh10.1 billion helping the bank absorb the income loss from lending to the private sector.
The bank also cut other operating expenses –including staff costs by two percent– riding on increased digitisation of processes.
