Top commercial banks made 41 percent of their total revenues from non-interest funding streams in the opening three months of the year to March.
An analysis of tier I banking sector performance shows the country’s top nine lenders booked Sh67.9 billion in non-funded income in the period from Sh46.2 billion previously which was equivalent to 35.8 percent of the share of income.
The 47 percent growth in non-funded income in the period was on the back of a two-fold rise in forex trading income to Sh23.1 billion from Sh11.5 billion at the same time last year.
The sharp growth in foreign exchange trading income has been largely attributed to increased margins and dollar shortages during the quarter. Beyond the rise in income from forex trading, analysts have credited the rise in non-funded income to the continued prominence of digital payments in recent years.
“Besides forex income, I would look at other fees and commissions as digital payments become ubiquitous in Kenya’s finance ecosystem,” noted Wesley Manambo, a research analyst at Genghis Capital.
Of the top nine banks, Stanbic Bank Kenya had the highest share of non-funded income to total operating income in the three months with more than half of operating income or 51.4 percent of revenues coming from non-interest sources.
The lender realized Sh5.7 billion in non-funded income in the quarter, against Sh5.4 billion in net interest income in the same period.
Moreover, of the Sh5.7 billion in non-funded income, Sh4.3 billion stemmed from foreign exchange trading income.
Other banks with notable shares of non-funded income in the three months included NCBA (46.2 percent), Equity (45.9 percent) and KCB (40.1 percent).
In contrast, the entire banking industry has a lower share of non-funded income which averaged 34 percent in 2022 from a lower 32.5 percent in 2018.
During the opening quarter, DTB had the lowest share of non-funded income to total operating income among the top banks at 29.6 percent indicating the lender earned most of its revenues from lending.
Non-funded income is expected to register further growth momentum from the return of bank to mobile-money wallet transaction charges following the withdrawal of remnant Covid-19 support measures in the banking industry at the start of this year.
Banking sector analysts have nevertheless pre-empted a reverse of the banking sector’s revenue mix in favour of interest income from a rebound in the lens has been narrowing which would indicate a gradual decline in forex income in the remaining quarters.
This will offset NFI growth going forward, even with the return of bank to M-Pesa transaction charges,” noted analysts at Sterling Capital.
Banks have been tipped to witness a resurgence in the growth of interest income as the lenders earn an opportunity to reprice credit facilities from the rising interest rate environment.
Already, leading commercial banks have been pausing their accumulation of government securities in favour of private-sector lending where the banks have the prerogative to adjust interest rates on the credit lines.
Despite the rising cost of loans, the demand for credit has been driven mostly by working capital needs in the first quarter of the year with the rate of private sector credit growth for instance closing April at a six-month high of 13.2 percent.
Credit risk-based pricing approvals for 33 of 39 banks are expected to further clear the way for additional loan repricing by the lenders setting off interest income on a renewed growth trajectory.
“We expect to see a shift in the income mix with net interest income moving higher from the rising interest rates. Banks' apathy to government securities and the increase in loans and advances will see earnings from lending rise higher and higher,” added Mr Manambo.
