Banks half-year profits defy tough times to hit Sh156bn


Central Bank of Kenya Governor Dr Kamau Thugge at a past event on July 17, 2023. PHOTO | LUCY WANJIRU | NMG

Commercial banks’ pre-tax profit for the six months ended June grew 30.4 percent to Sh156.1 billion, defying the tough economic environment where the stock of loans defaulted has been rising.

Latest data from the Central Bank of Kenya (CBK) on bank operations shows the earnings grew from the Sh119.7 billion posted last year.

The half-year earnings, which are higher than the Sh112.8 billion that was booked in the 2020 full-year, mark a monthly average of Sh26 billion, helped by increased interest and non-interest income.

The sectors’ half-year earnings are in line with the results reported by top lenders, including Equity, Co-operative Bank, Standard Chartered and Absa Bank in the review period.

The industry’s loan book grew for six straight months hitting Sh3.981 trillion in June from the end of December’s Sh3.677 trillion.

The increased lending helped banks to earn more interest income, with weighted average interest rates rising over time to hit 13.31 percent in June— the highest since March 2018 when the figure was at 13.49 percent.

The rise in interest rates has been in line with the rising Central Bank Rate (CBR). The CBK on June 26 raised the CBR from 9.5 percent to 10.5 percent— the highest point in nearly seven years.

Lenders have also seen a rise in non-interest income, partly helped by the reinstatement in January of charges for money transfers between banks and mobile money wallets.

Banks have, however, been hit by a rise in the stock of non-performing loans (NPLs), with the figure rising for five consecutive months to close May at Sh592.6 billion before easing to close June at Sh576.1 billion.

The June NPLs puts the banks’ asset quality, measured by the proportion of loan books that were in default, at 14.5 percent—an improvement from a 16-year high of 14.9 percent in May.

A CBK credit survey on 39 banks showed while 42 percent of the respondents indicated that NPLs are likely to rise in the third quarter, another 24 percent see the levels remaining constant. Some 34 percent expect a fall.

The survey showed that personal and household, trade and transport and communication top the list of sectors where many of the banks expect NPLs to spike.

CBK Governor Kamau Thugge in June said the rising defaults were linked to the prevailing tight economic conditions as well as the many individuals and businesses awaiting payments from national and county governments.

“One is the business environment and the other is the fact that the national government as well as the county governments have not been paying some of their suppliers,” said Dr Thugge.

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