Capital Markets

Banks first quarter profits up 25pc on lending spike


A customer is served at a bank branch. FILE PHOTO | NMG

Banks earned a cumulative pre-tax profit of Sh57.3 billion in the three months to March on increased lending that saw loans to the private sector grow at double-digits for the first time in six years as the economy recovers.

The earnings represent a 24.8 percent increase over the Sh45.9 billion they earned in the three months to March 2021, the latest sector data from the Central Bank of Kenya (CBK) shows.

The data shows lending to the private sector increased 10.9 percent in March, the first time since the growth of 11 percent in May 2016.

Risk however remains elevated with non-performing loans hitting a record Sh473.7 billion or 14 percent of total loans.

Banks that have begun disclosing their first-quarter numbers show impressive growth in earnings fuelled by higher operating income and low loan provisioning.

Equity Group’s net profit grew 33.7 percent to Sh11.5 billion in the first quarter while NCBA Group booked net profits of Sh3.41 billion, a 20.3 percent increase. HF Group posted a first quarter net profit of Sh34.2 million, the first in years.

“Credit seems to be driving interest income growth as well as fee income from the bank results we have seen. Banks are also in good shape after having cut costs and taken provisions the previous years,” said Eric Musau, a research analyst at Standard Investment Bank (SIB).

The economy which rebounded in 2021 to grow at 7.5 percent, the fastest pace in 11 years, has picked up from the 0.3 percent contraction in 2020.

The growth saw the economy create 926,100 jobs in the formal and informal sectors, the highest number in six years.

The robust growth has extended into the first quarter of the year as banks return to the market offering more loans to businesses and homes.

Earnings have also been driven significantly by higher lending to the government whose appetite for funds remains high due to a wide budget deficit.

Equity Bank’s lending, for instance, rose 27.8 percent to Sh623.5 billion while its holdings of government bonds and T-bills increased by a similar margin to Sh233.9 billion.

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