Only the banking sector recorded faster growth in the first quarter of 2024, reflecting the hefty profits lenders raked in from the high interest rates they charged and increased borrowing by businesses cash-starved businesses.
Data from the Kenya National Bureau of Statistics (KNBS) shows that all other economic sectors posted slower growth in the first three months of 2024 compared to the same period last year, pointing to a tough operating environment characterised by increased defaults owing to the expensive cost of money.
The financial and insurance sector grew by 7.0 percent in the first quarter of 2024 compared to 5.9 percent in the corresponding quarter of 2023, as commercial banks reaped from the expensive credit they charged borrowers including the government.
Interest rate spread—or the difference between what banks paid depositors and what they charged borrowers—widened to a 31-month high of 5.76 percent by the end of March this year, figures from the Central Bank of Kenya (CBK) show.
Stellar Swakei, a senior research associate at Standard Investment Bank (SIB), noted the growth in the banking sector was supported by earnings from loans.
“Following the tax adjustments under the Finance Act 2023, the cost of doing business in Kenya increased and the banking sector responded with a notable 7.5 percent average growth in net loans and advances to customers in the [the first quarter of 2024],” she said.
“Interest income also surged by an impressive 22.8 percent, likely driven by higher lending rates following the Central Bank's rate hike,” the SIB official added.
KCB Group, which posted a growth of 69 percent in profitability to overtake Equity Group as the most profitable bank, also recorded decent growth in its loan book.
The lender’s first-quarter profit growth came on the back of interest income, mainly derived from lending, growing 40.8 percent to Sh31.06 book. Equity Group grew its net interest income to Sh27.8 billion from Sh21.6 billion.
After the CBK raised its benchmark lending rate to help ease inflation in the economy, banks reacted by also raising the cost of lending, a move that was also blamed for the spike in defaults.
The Central Bank Rate, which signals the cost of borrowing, was raised to 13 percent in March 2024 from 9.50 percent in March 2023. Bank profitability rose by 12.9 percent in the review period to Sh73.5 billion from Sh65.1 billion in the same period last year, CBK data shows.
On Wednesday, the national statistician reported that Kenya’s economy grew by a slower pace of five percent in the first three months of 2024 compared to 5.5 percent in the same period last year, in a period when the business environment was roiled by high interest rates.
