Listed banks have doubled their interim dividends to Sh13.4 billion from Sh6.7 billion in the first half of last year, signalling enhanced payouts for the full year ending December.
The bumper payout is driven by the reinstatement of dividends by KCB Group.
KCB has returned to paying interim dividends at a rate of Sh1.5 per share to shareholders on the back of an 87 percent surge in net profit through the six months ended June to Sh29.1 billion.
NCBA Group, Stanbic Holdings and Standard Chartered Bank Kenya have meanwhile enhanced their dividend payout in the period to Sh2.25 per share from Sh1.75, Sh1.84 from Sh1.15 and Sh8 from Sh6 respectively also on the backdrop of improved earnings.
StanChart had, however, declared its previous interim dividend at the end of the third quarter in 2023 a shift from the norm of declaring the payout at the six-months point. Absa Bank Kenya has meanwhile retained its interim dividend at 20 cents per share or a cumulative Sh1.08 billion payout.
KCB has led the way in paying the largest interim dividend payout, which totals to Sh4.8 billion or Sh1.50 a share, ahead of NCBA’s Sh3.7 billion and StanChart’s Sh3.1 billion.
Equity Group, I&M Group, Co-operative Bank of Kenya, DTB Group and HF Group have not declared any interim dividends in the period, keeping in line with their tradition of only making final payouts.
The increased distribution to shareholders of listed banks comes amidst the improved industry profitability anchored primarily on increased lending margins following elevated interest rates in the economy over the last 12 months.
Commercial banks have successfully repriced loans to customers higher, supported in part by the Central Bank of Kenya (CBK) high-interest rate policy to combat inflation and foreign exchange volatility. The implementation of risk-based pricing has allowed lenders to price loans up for their riskiest customers.
The CBK, for instance, raised its benchmark lending rate to a high of 13 percent in February from 8.75 percent at the same time last year, resulting in a general increase in interest rates across asset classes, including loans and yields on government securities.
The Central Bank Rate (CBR) was lowered to 12.75 percent in the August 6 monetary policy committee meeting.
Equity and Absa have, for instance, managed to grow their respective net interest income lines by 17.2 percent and 19.7 percent respectively in spite of their loan books shrinking in the period to mirror the contraction in credit demand.
Banks have, nevertheless, faced higher costs, including payments on fixed deposits and loan-loss provisioning as the high-interest rate environment lifts deposit rates even as they drive up non-performing loans for the industry.
The executives of commercial banks have lauded the performance of their respective units, deeming the improved profitability to be a marker of resilience for the industry amid domestic and external shocks.
“We delivered a commendable first half of the year, despite strong headwinds in the operating environment especially in Kenya, thanks to the goodwill and confidence from our customers and commitment by our staff,” KCB Group CEO Paul Russo noted.
The improved sector profitability through the six months has set up shareholders for yet another bumper payout at the full-year stage when most of the listed banks are expected to declare final dividends on higher earnings by December.
Banks’ net interest margins are, however, expected to narrow in the short term.
The CBK is expected to trim interest rates further, having begun with a 0.25 percent cut this month to spur credit demand after a rate tightening run that sought to set down inflation and foreign exchange volatility.
The fall in interest rates will, however, partly benefit the lenders as their cost of funds drop from a contraction in deposit rates.
Lower interest rates will moreover aid in the unwinding of non-performing loans, helping unlock part of the billions of shillings held by the banks as loss buffers into the profit account.
The banking industry remains well capitalised to navigate headwinds going into the end of 2024, with sufficient capital and liquidity buffers.
“The capital adequacy ratio increased marginally to 19.1 percent in June 2024, from 18.6 percent in March 2024,” the CBK noted in its second quarter credit survey.
