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Banks’ profit up 5pc in 11 months to November

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Guests during the release of a banking sector report in Nairobi in October 2019. PHOTO | SALATON NJAU

timothy odinga

Summary

  • CBK data puts the period’s earnings only Sh2 billion shy of the full year earnings for 2018, which were recorded at Sh152.3 billion.
  • Despite the lending rate slowing to a more than 15-year low of 12.38 percent in November and remaining generally suppressed throughout the year.
  • The sector comprising of 40 lenders remains upbeat following the scrapping of the rate cap in November.

Commercial banks earnings before tax in the 11 months to November 2019 jumped to Sh150.1 billion, representing a five percent rise from the Sh142.6 booked over the same period in 2018.

New data published in the Central Bank of Kenya’s (CBK) November 2019 monthly economic indicators report puts the period’s earnings only Sh2 billion shy of the full year earnings for 2018, which were recorded at Sh152.3 billion.

Despite the lending rate slowing to a more than 15-year low of 12.38 percent in November and remaining generally suppressed throughout the year, the sector comprising of 40 lenders remains upbeat following the scrapping of the rate cap in November.

With the removal of rate cap, it is expected that bank earnings will go up, helped by increased interest income from customer loans. However, experts remain divided on this with others arguing other key factors play an important role too.

“Despite the removal of rate caps, high yields from government papers and poor asset quality is still likely to affect the lenders’ ability to grow their loan books,” said Patrick Mumu, a research analyst with Genghis Capital.

The CBK has also warned the lenders to excise discretion in issuing loans and not to overcharge loan seekers to enhance credit access for micro, small and medium enterprises.

“We must satisfactorily respond to the question at the top of every Kenyan’s mind: what will be different this time?” said CBK governor Patrick Njoroge during the Kenya Bankers’ Association (KBA) Sustainable Finance Initiative Catalyst Awards late last year.

The sectors profitability has continued to grow in recent years — defying a projected slowdown in the rate cap era.

The Sh150 billion gross earnings reported for is more than double the Sh66 billion earned by the sector over the same period a decade ago.