KCB falls behind Equity in quarter one profit raceThursday May 23 2019
KCB Group #ticker:KCB fell behind close rival Equity Group #ticker:EQTY in the race for the most profitable lender in the first three months of the year despite posting a net profit jump of 11.4 percent to Sh5.77 billion.
This marks the second year in a row that KCB has played second fiddle to Equity at the first quarter mark.
Equity’s net profit during the January to March period was Sh6.2 billion, a growth of 4.9 percent.
KCB has, however, been the most profitable bank on a full-year basis in recent years.
The last time KCB, whose CEO is Joshua Oigara, lagged behind Equity, led by James Mwangi, in full-year bottom-line was in 2014. Both banks are eyeing new deals to deepen their presence in the region, defining the next phase of their competition.
During the quarter under review, KCB grew its interest income by 7.1 percent to Sh16.78 billion as its loan book expanded 11 percent to Sh464.2 billion. This even as interest expenses fell 4.1 percent despite having received an additional Sh55.8 billion.
Non-interest income increased 9.2 percent to Sh6 billion, further supporting the rise in profits.
“The performance is as a result of a sustained strategy that is anchored on a simplified customer journey and products that provide solutions to our customers,” said Mr Oigara on the performance.
While KCB’s operating income was Sh18.75 billion, being higher than Equity’s Sh16.47 billion, Equity beat its rival on the bottom-line due to lower operating costs.
KCB’s operating expenses increased 8.2 percent to Sh10.3 billion driven by near doubling (93.8 percent rise) in loan loss provisioning to Sh1.2 billion while Equity’s costs were at Sh8.7 billion.
The rise in provisions is in line with Genghis Capital expectation that provisioning for top banks will more than double in the year.
“We view the upcoming revision in provisions in 2019 as the key risk factor in profitability for the bank going forward. As such, we project provisions will rise 130.9 percent year-on-year in financial year 2019 to Sh6.8 billion, encroaching on bottom line growth,” the investment bank said last month.
Equity’s loan loss provisioning rose by 14.2 percent to Sh409.9 million during the period.
Of the tier I banks, Standard Chartered Bank #ticker:SCBK has posted the fastest rise in profit (31 percent to Sh2.41 billion hugely supported by a 5.6 percent rise in non-interest income to Sh2.3 billion as operating expenses fell 11.7 percent to Sh3.8 billion.
Co-operative Bank Group saw its profit rise 4.4 percent, supported by growth in non-interest income and reduced costs. Total non-interest income rose 19.1 percent to Sh4.2 billion as operating expenditure decreased by Sh75 billion.
With erosion of the sector’s key revenue driver - interest income - there has been increased focus on non-interest revenue.
Genghis expects this category of revenue to become more important this year.
“We expect non-interest income as a proportion of total income to rise gradually in 2019, averaging 33.5 percent for banks under our coverage,” said Genghis in an outlook that captured KCB, Equity and Co-operative banks #ticker:COOP.
Other lenders captured in the analysis are Standard Chartered Bank, Barclays Bank, Stanbic Holdings #ticker:CFC , DTB Bank #ticker:DTBK and I&M Holdings.