KCB stays ahead of Equity in banks’ profitability race

Equity Bank CEO James Mwangi (left) and KCB Group CEO Joshua Oigara. FILE 

By GEORGE NGIGI and DAVID HERBLING

In Summary

• KCB returned an after-tax profit of Sh14.3 billion, opening a Sh1.1 billion gap with its closest rival Equity Bank.
• Equity also released its annual financial results Thursday showing that its after tax profit grew 10 per cent to Sh13.2 billion for the same period.
• This means KCB also grew its profit at a faster rate than Equity – setting it up for continued market leadership if the trend continues. 
• KCB returned a bigger profit despite the fact that Equity ran a wider revenue margin in the year under review.

KCB Thursday asserted its position as Kenya’s most profitable bank for the third year in a row after it reported a 17 per cent earnings growth for the year ended December 2013.

KCB, which is also East Africa’s biggest bank by capitalisation, returned an after-tax profit of Sh14.3 billion, opening a Sh1.1 billion gap with its closest rival Equity Bank.

Equity also released its annual financial results Thursday showing that its after tax profit grew 10 per cent to Sh13.2 billion for the same period.

This means KCB also grew its profit at a faster rate than Equity – setting it up for continued market leadership if the trend continues. 

“We are excited with the performance reflecting growth in all our business segments,” KCB chief executive Joshua Oigara said.

KCB returned a bigger profit despite the fact that Equity ran a wider revenue margin in the year under review.

Equity’s interest margin – difference between its cost of funds and the lending rate- was 12 per cent compared to KCB’s 10.1 per cent – meaning it earned more for equal amount of loans disbursed.

KCB therefore relied on better cost management to outpace its rival.

The bank used 54 per cent of its revenues to pay for operational costs compared to 57.4 per cent a year earlier, riding on a three-year staff restructuring plan that ended last year with a one-off cost of Sh1.1 billion.

Kenya’s biggest bank by capitalisation had for long been saddled by a heavy cost burden that forced it to call in international consultants to help it shed some of the weight.

Equity’s efficiency, however, remains better than KCB’s at a cost to income ratio of 48.5 per cent.

This is what has enabled it to vigorously challenge KCB’s market leadership with a comparatively smaller asset base. Equity’s assets were Sh114 billion less than KCB’s in the year under review.

KCB also reduced interest paid to customers at a faster pace than Equity – a move that enabled it to cut interest expenses by Sh3.4 billion despite a six per cent increase in customer deposits.

Equity’s interest expenses fell by a smaller margin of Sh1.2 billion.

KCB, however, paid the price for the rapid reduction of interest paid on customer deposits. The bank’s customer savings grew by a smaller margin of Sh17 billion compared to Equity’s Sh29 billion growth during the same period.