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Top banks’ dividends hit Sh85bn after rates hike
Bank profits surged as they passed higher interest rates on to borrowers far more quickly than to savers, whose deposits dropped by Sh389 billion last year.
Top banks will return a record Sh85.27 billion to shareholders as dividends on the back of costly loans that helped deliver bumper profits and staff bonuses.
The nine tier I banks—KCB Group, Equity Group, Co-operative Bank of Kenya, NCBA Group, Standard Chartered Bank of Kenya, Absa Bank of Kenya, Stanbic, I&M Group and Diamond Trust Bank — increased dividends 35 percent from their profits that jumped 25.6 percent to Sh231.5 billion.
Their net profits rose by between 10 percent and 66 percent.
The bumper profits also set the stage for bonus payments to bank employees in a sector known for high rewards to its CEOs and executives.
Bank profits surged as they passed higher interest rates on to borrowers far more quickly than to savers, whose deposits dropped by Sh389 billion last year—helping the lenders to ease the burden of paying returns on cash sitting in their vaults.
The cost of loans rose to 22-year high in 2024, triggering a cash crunch in the economy as firms and households cut back on borrowing for the first time in decades.
Standard Chartered, Equity, KCB and Absa returned the largest amounts to shareholders on the back of their 2024 results, distributing Sh17 billion, Sh16 billion, Sh9.6 billion and Sh9.5 billion, respectively.
Besides emerging at the top of the pile, Standard Chartered distributed the largest share of its earnings at 85 percent of its Sh20 billion net profits against the top tier bank’s average of 36.8 percent.
Despite being the most profitable lender, KCB distributed 16 percent of its Sh60 billion net profit as dividends.
Banks have emerged as the big winners in a soft economy in which companies in other sectors struggle to generate profits and give returns to their shareholders in the form of dividends.
Companies in sectors such as manufacturing, services, investments, energy and agriculture have reported significantly lower profit growth in 2024 relative to banks, whose earnings were boosted by high interest rates.
The non-bank firms have cited factors such as reduced demand for goods and services, high cost of credit, exchange rate fluctuations and costlier inputs as some of the reasons for their slow earnings growth.
These misfortunes have wetted the market for banks, helping the lenders generate outsized returns as shareholders enjoy a dividend bounty.
Unlike non-bank firms which have limited options to cushion themselves against economic shocks, analysts say that the lenders have been able to lean on risk-based pricing of loans to protect their margins.
Interest income from loans grew by Sh74.7 billion or 19.9 percent in a year that saw demand for loans in the tier one banks contract 7.9 percent—the first in over two decades — as firms bulked at the high borrowing costs.
The high cost of borrowing had discouraged borrowers from tapping loans in an economic setting where demand for products is sluggish, forcing firms to freeze hiring and expansion plans.
But the shrinkage in the loan book did not stop banks from making cash from the borrowings, aided by the high interest rates.
They also cut back on costly deposits, with savings shrinking 6.5 percent, helping slow the growth of expenses on customer deposits that rose by Sh57.8 billion.
The banks have in the past two months cut their lending rates after the central bank started slashing the benchmark rate in August, yielding to pressure from the banking regulator.
Analysts reckon that the lower interest rates will not derail the profits growth, arguing that the lenders are cutting deposit rates faster and at higher margins to ease pressure on net interest income — the difference between what banks pay on deposits and what they earn from loans and other assets.
The drop in the cost of loans is expected to prompt consumers to borrow for investments and consumption in the coming months, boosting economic activities and revving up bank profits and payouts.
Tier lenders have increased their dividends nearly five-fold since 2020—the most for any sector that has their shares at the Nairobi bourse.
The payouts are a windfall for top investors in listed banks, including the families of retired President Uhuru Kenyatta, former Central Bank of Kenya governor Philip Ndegwa and I&M Bank founder Suresh Bhagwanji Raja Shah.
They are set for multi-million shilling dividend cheques.
Equity Group CEO James Mwangi and Co-operative Bank managing director Gideon Miuriuki are also top beneficiaries, earning Sh543 million and Sh146 million, respectively, from their direct ownership of the banks they lead.
The Kenyattas, who hold a 13.2 percent stake in NCBA Group through Enke Investment Limited, will pocket a record Sh1.2 billion from the lender’s Sh9 billion payout.
The Ndegwa family, which through First Chartered Securities Limited hold a 14.94 percent stake in NCBA, will earn Sh1.35 billion in dividends.
Andrew Ndegwa and James Ndegwa, who held a 4.3 percent and 4.23 percent stake respectively in 2023, are in line for Sh389.6 million and Sh383.3 million payday.
Suresh Bhagwanji Raja Shah, the founder member and chairman of I&M Bank Limited, will receive Sh524.4 million for his 174.95 million shares in the lender that will pay shareholders Sh5 billion.
Mr Shah’s two sons, Sachit Shah and Sarit Shah, will receive Sh111.46 million and Sh112.79 million respectively for their stakes in the bank.
