Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Banks post Sh262bn pre-tax profit on high loan rates
Banks achieved the higher profitability even as lending to the private sector contracted by 1.4 percent in the review period, underlining the impact of the repricing of existing credit facilities.
Commercial banks set a new record pre-tax profit of Sh262.3 billion in 2024, buoyed by high lending rates and income from government securities, new disclosures from Central Bank of Kenya (CBK) shows.
The performance signals a bigger headroom for banks to reward their shareholders with enhanced dividend payouts.
Banks rode the wave of the rising interest rate environment to adjust lending rates upwards, while increasing their return from packing funds in government securities including Treasury bills and bonds. Interest charged on bank loans topped 25 percent last year when interest on Treasury bills topped the 16 percent mark.
Last year also marked the first full year of risk-based pricing where all 37 licensed commercial banks were free to adjust interest rates on each individual customer based on their risk profile.
“Cumulative banking sector pre-tax profits increased by Sh36 billion or 15.9 percent, to Sh262.3 billion in December 2024, compared to Sh226.3 billion in December 2023,” CBK said on Thursday.
Banks achieved the higher profitability even as lending to the private sector contracted by 1.4 percent in the review period, underlining the impact of the repricing of existing credit facilities. The loan contraction was the sharpest dip in 22 years.
The higher lending margins for commercial banks were however partly offset by a rising cost of funds for the lenders, as they were forced into lifting their deposit rates amid competition from returns on government securities.
Banks were equally forced into shoring up their cover for expected credit losses as the ratio of non-performing loans (NPLs) closed in on a two-decade high, peaking at 16.7 percent in June last year.
The record profits for banks set up their shareholders for a dividend bounty next month, when most lenders disclose their respective full-year earnings alongside final dividends.
Market analysts expect banks to announce record dividend payouts.
“Dividends have been a key driver of price appreciation come March 2025, as banks announce their financial year 2024 results, and in this respect, we expect Standard Chartered Bank to announce the highest dividend payout ratio,” noted analysts from Sterling Capital.
The decline of interest rates this year is expected to slow down the earnings of lenders which also rake in substantial revenue from fees and commissions. Banks will equally see their cost of funding fall, as deposit rates decline in tandem with general interest rates, while part of the funds kept aside as provisions for bad loans will be released back into the lenders’ profit accounts.
CBK has put banks under pressure demanding that they cut interest rates to aid in private sector credit recovery, threatening fines of up to Sh20 million on institutions and Sh1 million for banking executives if they fail to honour the call.
“We have started the on-site inspection with staff working with five banks which should be completed within the next two weeks or so, but nobody has been fined yet as we wait to see the results,” CBK Governor Kamau Thugge said on Thursday.
Dr Thugge has accused banks of being quick to raise interest rates during the rising interest rate environment but slow to cut in the reversal.
CBK further cut its benchmark interest rate and the cash reserve ratio respectively from 11.25 to 10.75 percent and from 4.25 to 3.25 percent with the view of increasing the banking sector liquidity for on-lending to customers.
