Banks’ Sh224bn record profits signal bonus, dividends boom


Equity Group CEO James Mwangi on November 22, 2022. PHOTO | DIANA NGILA | NMG

Banks’ pre-tax profits for 11 months to November last year hit a record Sh223.7 billion on increased lending, setting the stage for a dividend windfall for owners when full-year results are announced in March.

Central Bank of Kenya (CBK) economic indicators show that the pre-tax earnings are already 25 percent ahead of the 178.8 billion that was posted in a similar period in 2021 and the Sh194.8 billion for the full year.

Increased profits in the sector set up investors for another year of dividends, with lenders such as KCB, Equity, Absa Kenya and Standard Chartered Bank Kenya that had cut or frozen payouts in 2020 due to Covid-19 disruptions having resumed or increased payouts last year.

The profit boom also sets the stage for bonus payments to bank executives in a sector known to pay higher rewards to top managers.

Nine listed banks—Equity, KCB, Co-op Bank, NCBA, Standard Chartered Kenya, Absa, Stanbic, DTB and I&M— last year nearly trebled the dividend payouts to Sh51.7 billion for the 2021 performance, up from Sh18.8 billion in 2020.

Banks are expected to declare the full-year results by end of March, with annual general meetings following to ratify dividend decisions.

The latest increased earnings come on the back of continued economic recovery that has seen banks expand lending and stem growth in non-performing loans.

The lenders closed the review period with a loan book of Sh3.656 trillion compared with Sh3.248 trillion as they stepped up lending to key sectors in the private sector.

Listed banks had grown their loan books by between 1.7 percent (HF Group) and 34.1 percent (Stanbic Bank) by the end of September.

Increased lending and upward review of loan prices have helped lenders book more interest income while aggressive loan recoveries have saved them from a sharp elevation of loan defaults.

CBK data shows the weighted average lending of 23 out of the 39 commercial banks had increased by September when compared with the average rates for June.

Many lenders have been revising the rates upwards to reflect the risk profile of customers, with some taking the rates as high as 20 percent, partly on the decision by the CBK to increase the benchmark lending rates.

Personal overdrafts were by September priced at between 9.3 percent and 15.2 percent while personal loans above five years ranged between 7.4 percent and 23.7 percent.

The CBK last year revised upwards the benchmark lending rates thrice to close the year at 8.75 percent in bid to tame inflation that had risen for eight consecutive months to 9.6 percent in October before cooling off to 9.5 percent and 9.1 percent in November and December respectively.

The rise in profits is despite banks having missed out on fees and commissions charged on money transfers between banks and mobile money wallets following the freeze by the CBK in 2020.

The fees were, however, reinstated early this month.

The lenders charged between Sh30 and Sh197 before the waivers were introduced in mid-March 2020 but most of them have reviewed downwards the charges amid pressure from the CBK and customers.

The reinstatement of the charges looks set to offer tailwinds to banks’ earnings given that they have been missing out on billions of shillings.

Equity and KCB, for instance, said they lost Sh1.2 billion and Sh2.2 billion in 2020.

Market leader Equity had seen a 32 percent jump in non-interest income as that of KCB, Cooperative Bank and NCBA rose by 30.2 percent, 28.3 percent and 40.1 percent respectively by end of September.

The growth in non-funded income even in the absence of charges on transfers between telcos and banks shows the lenders were riding on fees and commissions on the other chargeable transactions that have been on a rise.

But banks still have the headache of non-performing loans (NPL) to deal with. The NPLs ratio—the portion of loans for which interest or principal has not been paid—was at 13.8 percent in November.

Banks had closed the third quarter with the NPL ratio of 12.3 percent as building and construction, tourism, manufacturing, real estate, financial services, transport and communication and trade sectors cumulatively registered declines in NPLs amounting to Sh24.6 billion.

The sector, however, expects some increase in provisioning aimed at cushioning the players from the elevated credit risk arising from the persisting inflationary pressures.

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