Prime Bank profit dips 9pc, second lender to record fall

Mid-sized lender Prime Bank on Wednesday posted a 9.3 per cent drop in net profit for the third quarter ended September, becoming the second Kenyan lender to announce reduced earnings in the period since the rate capping law came into effect.

Prime Bank’s earnings declined to Sh1.37 billion, down from Sh1.5 billion posted over a similar period last year, the lender said in a statement published on Wednesday.

On Tuesday, small-sized lender Victoria Commercial Bank (VCB) reported a 27.1 per cent drop in net earnings for the nine months ended September 30 to 429 million.

Small and medium banks are tipped to take the biggest hit as banking changes from a high-profit margin regime to a volume game. Tier-one banks KCB Group and Equity have reported double-digit growths in earnings, in line with expectations that the big lenders will weather the interest rates cap storm better.

The Banking (Amendment) Act 2016, which came into force on September 14, sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).

The law also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR. The CBR is currently set at 10 per cent, meaning that banks are barred from charging interest on loans above 14 per cent.

Kenya’s largest bank by assets KCB Group announced a 15 per cent growth in third quarter net profit to Sh15.9 billion, keeping the lender slightly ahead of close rival Equity Bank.

READ: Citi says rate caps to hit small banks hardest

Equity Bank’s profit after tax for the nine months to September rose by 18 per cent as it reported an after-tax profit of Sh15 billion for the period ended September, up from Sh12.8 billion in a similar month last year.

On Wednesday, Prime Bank said its loan book decreased 3.2 per cent to Sh40.7 billion in the third quarter from Sh42 billion over a similar period last year.

Its assets now stand at Sh66.9 billion, up from Sh64 billion in 2015 while customer deposits rose to Sh51.2 billion from Sh50.4 billion over the same period.

Prime Bank is ranked 15th in size out of Kenya’s 40 operational banks, with 24,000 deposit accounts and 4,000 loan accounts — giving it a cumulative market share of 1.82 per cent, according to latest CBK data.

The bank’s Chief executive Bharat Jani had earlier said the lender will consolidate its lending to the SME sector that accounts for a quarter of its loan book.

Increasing lending to this sector, he had noted, will see the bank open additional branches and seek long-term funding from development financiers.

“The bank is in partnership with French development financier, Proparco, to cater for small and medium businesses’ long term foreign currency loans,” he said earlier.