Kenyan banks cut interest on deposits

Central Bank of Kenya cut its lending rate further in early May to encourage commercial banks to follow suit. Photo/FILE  Nation Media Group

By PETERSON THIONG’O The EastAfrican
 

 

In Summary

• Data from Kenya’s five biggest banks — Equity, KCB, Barclays, Standard Chartered and Co-operative — show interests paid on deposits fell faster than net interest earnings (income from interest on loans).

Kenyan banks paid less interest on customers deposits in the first three months to March compared with the same period last year.

Data from Kenya’s five biggest banks — Equity, KCB, Barclays, Standard Chartered and Co-operative — show interests paid on deposits fell faster than net interest earnings (income from interest on loans).

This helped banks maintain double digit interest spreads — the difference between what banks charge on loans and the interest they pay on customer deposits — effectively boosting their profits.

Continued pressure by the central bank on lenders to push down their interest rates saw the cost of loans fall marginally. In early May, the CBK cut the key lending rate, by 100 basis points to 8.5 per cent.

READ: Kenya cuts key lending rate to 8.5pc

Most banks have over the past month cut the interest rates by at least one per cent. But still, the gap between the CBR and what the banks are offering customers remains at nearly 10 per cent with lenders arguing they are holding the lending rates high because depositors are still demanding high returns for their cash.

In the first three months of the year, Equity Bank’s total interest expense stood at Ksh726 million ($8.59 million), a drop from the Ksh1.1 billion ($13 million) paid out last year, while the bank’s interest earnings dropped from Ksh7.28  billion ($86.1 million) to Ksh7.3 billion ($86.3 million).

KCB paid out Ksh2 billion ($23.6 million) in interest on deposits compared with Ksh3 billion last year, while Co-operative Bank paid Ksh1.3 billion ($15.3 million) compared with Ksh2.3 billion ($27.2 million) in the first quarter of 2012.

KCB’s interest earnings dropped to Ksh9.7 billion ($114 million) compared with Ksh10 billion ($118 million) earned in the first quarter of 2012. Co-operative Bank earned Ksh5.8 billion ($68.6 million) in interest income in the year to March compared with Ksh6 billion in the same period last year.

Standard Chartered’s interest expense stood at Ksh1.1 billion ($13 million) in the first three months, compared with Ksh1.2 billion ($14.2 million) last year, while Barclays saw its interest expense drop from Ksh793 million ($9.38 million) to Ksh620 million ($7.33 million).

Barclays’ interest income stood at Ksh5.17 billion ($61.1 million) in the period under review, compared with Ksh5.13 billion ($60.7 million) last year.

Overall, the banks’ interest expense fell faster than the drop in interest income, helping to boost net profits. “Private sector loan growth and the reduction in cost funding were the key drivers of the bank’s performance,” said Equity Bank CEO James Mwangi while announcing the bank’s results last month.

The regional lender’s net profit increased by 22 per cent to Ksh3.2 billion ($ 37.8 million) for the first quarter, helped by growth in its loan book and a drop in the cost of funding as a result of lower interest rates.

ALSO READ: Regional units of Kenyan banks double profits

The performance by Equity saw it unseat KCB as the region’s most profitable bank. In the first three months, KCB’s net profit grew by a quarter to Sh3 billion ($35.5 million) as increased transaction income and cheaper deposits helped offset the drop in lending income