KCB Group has posted a 69 percent growth in net profit to Sh16.06 billion for the first quarter ended March 2024 on increased income and reduced tax expense, racing past Equity Group for the first time in four years.
The lender’s results released Wednesday showed net profit grew from Sh9.5 billion, with the three-month earnings being equivalent to 43 percent of the Sh37.46 billion posted in the full year ended December 2023.
At Sh16.06 billion, KCB’s first-quarter net earnings are above that of Equity whose net earnings grew by a quarter to Sh15.4 billion in a similar period. This is the first time for KCB quarter one net profit to be ahead of Equity since 2020 when its net earnings were Sh6.26 billion compared with Equity’s Sh5.82 billion.
“Despite a difficult operating environment across the region, we saw a strong revenue performance in the business as we entrenched prudent credit, liquidity, cost, and overall risk management,” said Paul Russo, chief executive at KCB Group.
“Our deliberate investments in digital and payments capabilities as well as a regional expansion approach continued to deliver impressive results.”
KCB’s latest first-quarter profit growth came on the back of interest income, mainly derived from lending, growing 40.8 percent to Sh31.06 billion as the lender’s loan book expanded by 9.6 percent to Sh1.09 trillion.
Non-interest income, which comes from fees and commissions on loans and advances, grew 17.7 percent to Sh17.4 billion from Sh14.79 billion, raising the total operating income by nearly a third to Sh48.5 billion.
The group’s growth in net profit also benefitted from a lower tax—coming in at Sh4.67 billion or 22 percent of the pre-tax earnings compared with Sh6.77 billion or 48.8 percent of the pre-tax profit for the preceding similar quarter.
“It (the fall in the effective tax rate) is due to the investment we have done in income-earning assets that don’t attract taxes, for example, infrastructure bonds,” said Lawrence Kimathi, chief finance officer at KCB Group, adding that investment in government securities rose by nearly a third.
KCB Group’s main subsidiary, KCB Kenya, grew its net profit by 73.2 percent to Sh11.17 billion from Sh6.45 billion. National Bank of Kenya, another unit in Kenya, which KCB fully owns but is on course to sell to Nigeria’s Access Bank, quadrupled its net profit to Sh444.2 million from Sh101.1 million.
The lender said the contribution of other subsidiaries to pre-tax profit, excluding KCB Bank Kenya, was 17.9 percent, signalling the benefits of diversification to other markets including Uganda, Tanzania and the Democratic Republic of Congo.
The quarter under review saw KCB Group’s operating expenses rise 18.8 percent to Sh27.33 billion, driven by increased provisioning for loan defaults, more spending on paying workers and a surge in other operating expenses.
Cost-to-income ratio, which measures efficiency, improved to 43.3 percent from 51.2 percent on the back of income growing at a faster rate than that of operating expenses.
The lender raised its loan loss provisioning by 53.4 percent to Sh6.3 billion in the period the stock of loans from which interest or principal has not been received for at least three months hit Sh205.3 billion from Sh176.5 billion.
The increased stock of defaulted loans saw the non-performing loans ratio close the quarter at 18.2 percent from 17.3 percent, with KCB attributing this to downgrades in Kenya and the impact of translation of the foreign currency-denominated loan book.
Staff costs rose to Sh9.65 billion from Sh9.36 billion while other operating expenses went up by 13.5 percent to Sh8.4 billion.
KCB Group's balance sheet hit Sh1.996 trillion from Sh1.63 trillion, inching closer to Sh2 trillion while deposits shot to Sh1.5 trillion from Sh1.19 trillion, largely from the Kenyan market.
“We are optimistic about the business prospects in the remaining part of the year, compared to last year. We have made tangible progress to sustain superior shareholder value by delivering strong financial performance while driving our agenda to build a future-proof business,” said Joseph Kinyua, chairperson at KCB Group.
