Record Sh96bn bank profit signals return of dividends

Business Reporter

Nation Media Group

Banks made a record Sh96.4 billion in profit before tax in the first half of this year in the clearest indication yet that the sector has come out of the downturn caused by the Covid-19 pandemic and heralding a resumption of dividends for shareholders.

The lenders recorded a 61 percent jump in gross earnings from the Sh60 billion they made in the first half of last year, when performance was depressed by the onset of the pandemic that was followed by restrictions that hit the economy hard.

The half year earnings for 2021 have now surpassed the pre-Covid high of Sh85.8 billion recorded in the first six months of 2019.

Central Bank of Kenya (CBK) said in its quarterly credit officers survey report that lenders were able to grow profits due to improved quality of their loan books, combined with higher lending as the economy continues to recover from last year’s woes.

“This was as a result of a higher increase in income (6.3 percent) as compared to increase in expenses (4.5 percent). Return on Assets increased to 2.71 percent in June 2021 from 2.65 percent in March 2021,” said CBK.

Lenders had reacted to the lower income last year by freezing or cutting dividend payments to preserve capital, but analysts say the recovery in their bottom line will allow them to resume payouts to their shareholders.

The capital adequacy ratio for the sector has now improved to 18.9 percent from 18.52 percent in June 2020, well above the statutory minimum of 14.5 percent.

“Looking at the earnings numbers, the significantly higher profits will give them latitude to distribute dividends to shareholders, despite earlier expectations that they would make lower than expected dividend payments,” said Churchill Ogutu, the head of research at Genghis Capital.

Last week, Stanbic Bank Kenya became the first lender to reinstate interim dividends after its net profit went up by 37 percent in the six months ended June to Sh3.5 billion.

Equity Bank reported a 98.4 percent jump in net profit for the first half of the year to Sh17.9 billion. The lender recently said it will pay between 30 and 50 percent of net profit as dividends going forward, pointing to a big payout this year going by the half year profit.