Banks extend profit run on cost-cutting, loan interests
The continued rise in banks profitability has been delivered against the backdrop of a faster drop in total operating expenses as the lenders’ incomes grow at a slower pace.
Commercial banks’ profits jumped 12.9 percent in the three months to March on the backdrop of cost-cutting measures and higher income from loan interest charges, setting the stage for continued dividend and executive bonus boom.
The lenders booked a pre-tax profit of Sh73.5 billion in the first three months of this year, new Central Bank of Kenya (CBK) data shows. The pre-tax profits earned in the three months to March represent a 12.9 percent increase on the Sh65.1 billion the banks realised over the same period last year.
The higher sector’s profit also indicates the industry’s resilience and agility to grow income amidst high interest rates and loan defaults.
“Quarterly profit before tax increased by Sh25 billion from Sh48.5 billion in the quarter ended December 2022 to Sh73.5 billion in the quarter ended March 2024. The increase in profitability was mainly attributable to an increase in quarterly income by Sh9.1 billion and a decrease in quarterly expenses by Sh15.9 billion,” CBK indicated.
The continued rise in profitability has been delivered against the backdrop of a faster drop in total operating expenses as the lenders’ incomes grow at a slower pace.
The overall drop in banks’ operating expenses has been despite rising costs to secure customer deposits and the requirement for higher provisions from rising loan defaults.
Top banks have nevertheless struggled to cut their overall expenses, pressured by high-interest expenses on customers from their huge deposit holdings and higher loan defaults.
Equity Group for instance saw its first quarter total operating expenses rise to Sh29.6 billion from Sh23.1 billion, as the bank nearly doubled its loan-loss provisions to Sh6 billion from Sh3.4 billion.
The lender however grew its net profit for the period by 25 percent as its first-quarter income climbed to Sh15.3 billion from Sh12.3 billion previously.
Its peer KCB also struggled with higher expenses in the opening quarter as interest costs hit Sh18 billion from Sh11.5 billion while loan-loss provisions were higher at Sh6.3 billion from Sh4.1 billion.
KCB however posted a quarterly profit of Sh16 billion from Sh9.5 billion previously on higher income.
Stanbic Bank Kenya was among the few outliers in the tier I category having trimmed its non-interest related expenses in the quarter to Sh4.7 billion from Sh5.6 billion on lower other expenses.
The lender however contended with higher interest expenses at Sh5.6 billion from Sh2.4 billion previously.
The bank posted a 2.7 percent rise in net profit in the quarter to Sh3.9 billion, a marginal change from a Sh3.8 billion net income in March 2023.
The banking industry's total assets declined by 2.7 percent in the three months to Sh7.5 trillion from Sh7.7 trillion in December, on the decrease of gross loans and advances to customers which fell to Sh4 trillion from Sh4.1 trillion at the end of 2023.
“The decrease in gross loans was largely witnessed in the manufacturing, personal and household, trade and real estate sectors. The decrease was mainly due to the foreign exchange rate decline. Foreign currency loans dropped from Sh1.2 trillion in December 2023 to Sh990.2 billion in March 2024,” CBK added.
Total deposits were, however, higher in March at Sh5.8 trillion from Sh5.5 trillion at the end of December even as foreign currency deposits dropped from Sh1.9 trillion to Sh1.6 trillion in the same period.
The industry’s asset quality meanwhile deteriorated further on rising defaults with the rate of non-performing loans spiking to 15.7 percent, from 14.8 percent at the end of the prior quarter.
Banks' capital and liquidity ratios however remain strong at 18.6 percent and 53.6 percent against a statutory requirement of 14.5 and 20 percent respectively.
A capital ratio is a measurement of a bank's core equity capital compared with its total risk-weighted assets, while a liquidity ratio gauges a debtor's ability to pay off current debt obligations without raising external capital.
