Commercial banks defied high loan defaults and reduced borrowing to post a 14.6 percent rise in pre-tax profit to Sh203.8 billion for nine months ended September 2024.
Latest data from the Central Bank of Kenya (CBK) shows the earnings increased from Sh177.8 billion posted in a similar period last year.
The first quarter was the strongest with a pre-tax profit of Sh73.5 billion, followed by Sh66.1 billion in the second quarter and Sh64.2 billion in the third quarter.
The performance shows that banks are on track to maintain a growth trajectory in profitability, defying a tough year in which floods between March and June, anti-government demonstrations in July and generally tight liquidity have hit other sectors of the economy.
The latest credit survey report for September shows that the decrease in profitability in the third quarter compared to the second was mainly attributed to a higher increase in expenses by Sh6.2 billion compared to a Sh4.3 billion increase in income.
Banks' profits have come on the back of a slowdown in lending and an increase in the stock of loan defaults. Private sector credit growth decelerated to 0.4 percent in September—the slowest pace in over five years—while the non-performing loan ratio closed at 16.5 percent, the highest in nearly two decades.
CBK data shows that banks’ loan book closed September at Sh4.064 trillion, being a Sh135 billion drop from Sh4.199 trillion at the end of last year—a reflection of reduced lending as well as the decline in the value of dollar-denominated loans as the shilling gained against the dollar.
In the three months ended September, CBK notes that demand for credit remained unchanged in 10 sectors of the economy, with only the personal and household sector growing.
The CBK said while individuals and households stepped up demand for loans for expenditure in the upcoming festive season, the rest of the sectors showed unchanged or reduced appetite due to a rise in interest rates.
The benchmark lending rate hit a 12-year high of 13 percent in February this year and remained at this level until August when CBK cut it to 12.75 percent. A further cut came in October, bringing the rate down to 12 percent.
Banks have signalled to the regulator that they will tighten credit standards and aggressively pursue defaulters in this last quarter of the year.
“For the quarter ending December 31, 2024, banks expect to intensify their credit recovery efforts in eight economic sectors and retain them in three sectors. The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio,” CBK said in the credit survey.
Sixty one percent of banks told CBK that they saw an increase in liquidity during the third quarter. However, just 29 percent said they planned to deploy the additional liquidity to the private sector, while 44 percent were eyeing government paper.
