Commercial banks have posted a 11.58 percent rise in pre-tax profit to Sh181.1 billion in the first eight months of the year, defying the environment of increased loan defaults and reduced appetite for borrowing.
Central Bank of Kenya (CBK) data shows that January to August earnings grew from Sh162.3 billion posted at a similar time last year.
Data shared by CBK Governor Kamau Thugge during the post-monetary policy briefing showed March was the best month for banks, returning a pre-tax profit of Sh27.3 billion.
August was a slower month, with profits at Sh17.6 billion, becoming the only month since January with earnings below Sh20 billion.
The performance shows banks are on course to maintain a growth trajectory in profitability, defying a tough year in which floods between March and June, youth-led demonstrations in July, and generally tight liquidity have hit other sectors of the economy.
Kenya National Bureau of Statistics (KNBS) data showed the finance and insurance sector grew by seven percent in the first quarter of the year before slowing to 5.1 percent in the second quarter.
The CBK projects the sector’s full-year growth to be six percent, in what will mark the slowest growth since the 5.9 percent that was posted in 2020 as Covid-19 battered the economy.
The banking regulator has even cut the projected overall economic growth to 5.1 percent from 5.4 percent, having seen the second quarter growth decelerate to 4.6 percent, down from 5.6 percent in the same quarter of last year.
The CBK data shows banks’ loan book closed August at Sh4.045 trillion, marking a Sh154.4 billion drop from Sh4.199 trillion at the end of last year—a reflection of reduced lending as well as the decline in the value of dollar-denominated loans as the shilling gained against the dollar.
Private sector credit growth decelerated to 1.3 percent in August—the slowest pace in over five years—while the non-performing loan ratio surged to 16.7 percent, the highest in 18 years.
Economic growth
The high default and reduced appetite for borrowing has come in a regime of rising cost of credit, with benchmark lending rate hitting a 12-year high of 13 percent last February.
The CBK has started easing the pressure on borrowers with back-to-back cuts to take the rate to 12 percent in a bid to stimulate borrowing.
“The MPC noted the sharp deceleration in private sector credit and the slowdown in economic growth during the second quarter of 2024. It concluded that there was scope for further easing of monetary policy to boost economic activity while ensuring exchange rate stability,” said the CBK.
In the June CBK credit survey, 48 percent of the credit officers polled from 39 banks indicated that NPLs were likely to rise in the third quarter ending September while 18 percent expected them to remain unchanged. About 34 percent expected a fall.
