Multinational banks lead in profit efficiency


Stanbic Bank branch on Kimathi Street Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Local branches of multinational banks –Stanbic Holdings, Standard Chartered Bank Kenya and Absa Bank Kenya— are the most efficient lenders among the top-tier institutions.

Their relatively better efficiency is derived from growing their income while keeping a lid on costs, according to an analysis of the banks’ performance in the half year ended June.

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In general, the lenders recorded reduced efficiency in generating income on the back of higher operating and staffing costs, with higher provisioning for bad loans also denting their ability to keep total costs below half of income in the period.

The analysis of the nine lenders shows that on average, their cost-to-income ratio without including provisions for non-performing loans stood at 46.6 percent in the period, up from 45.9 percent in the first half of 2022.

Inclusive of provisions, the cost-to-income ratio rose to an average of 58.2 percent from 55.7 percent a year earlier, indicating the effect of the higher provisioning put in place to cover rising dud loans.

The cost-to-income ratio, which compares a lender’s operating expenses and operating income, is an indicator of how efficiently a bank is being run —measuring the proportion of income that is used to cover operating expenses.

Half-year financials show that five out of the nine large banks recorded a rise in the efficiency ratio in the six months to June, net of provisions.

KCB had the biggest jump on a cost-to-income basis, rising to 55.3 percent from 45.7 percent last year. The lender’s higher expenses were driven by exceptional costs including legal claims in the National Bank of Kenya subsidiary, staff restructuring costs and expansion costs related to its entry into the DRC market.

NCBA, DTB, Equity Group, and I&M Group also recorded higher cost-to-income ratios relative to last year, ranging from 1.9 to 6.3 percentage points.

NCBA’s ratio rose to 46 percent from 39.7 percent previously due to expenses rising faster than income, largely on employee and operating costs.

DTB’s ratio rose by 3.6 percentage points to 50.3 percent as operating costs rose at a faster pace compared to income, primarily on staff costs.

Equity recorded a jump of 2.3 percentage points to stand at 49 percent, also on the back of higher employee costs.

StanChart, Stanbic, and Absa meanwhile recorded the biggest declines in their ratios, helped by income growth outpacing that of expenses.

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StanChart’s cost-to-income ratio thus dropped to 44.1 percent from 50.6 percent while that of Stanbic retreated to 42.9 percent from 48.6 percent and Absa’s to 37 percent from 42.3 percent. Co-op Bank’s ratio was flat at 46 percent.

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