Money Markets
The Central Bank building in Nairobi. Total industry profits rose to
Sh71.03 billion at the end of June 2014 compared to Sh61.47 billion the
previous year. PHOTO | FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
- Kenyan lenders are on course to posting super profits as earnings grow by 15.6 per cent in the first half of 2014.
- Total industry profits rose to Sh71.03 billion at the end of June 2014 compared to Sh61.47 billion the previous year — helped by higher earnings in the second quarter of the year.
- Second quarter pre-tax profits rose to Sh37.61 billion from Sh33.42 billion in the first quarter of the year, according to the CBK’s banking report.
Kenyan banks are on course to delivering super
profits this year having posted double digits growth in the first six
months and staying far ahead of the projected rate of the economy’s
performance.
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The latest data from the Central Bank of Kenya (CBK) shows
that the lenders’ pre-tax profits grew by 15.6 per cent in the first six
months of the year, beating last year’s 15.5 per cent growth by a thin
margin.
Total industry profits rose to Sh71.03 billion at
the end of June 2014 compared to Sh61.47 billion the previous year —
helped by higher earnings in the second quarter of the year.
Second quarter pre-tax profits rose to Sh37.61
billion from Sh33.42 billion in the first quarter of the year, according
to the CBK’s banking report.
Interest income accounted for nearly two thirds of
the profits even as the loan book grew by only five per cent, pointing
to the central role that high interest rate spreads are playing in
driving the profits machine.
“Interest on loans and advances, fees and
commissions and government securities were the major sources of income
(in quarter two) accounting for 58.5 per cent, 19.4 percent and 15.1 per
cent of total income respectively,” the report says.
Interest on deposits, staff costs and other
expenses accounted for 32.7 per cent, 28.4 per cent and 24.3 per cent of
the total expenses respectively.
The lenders’ total income increased by 9.4 per cent
to Sh104.0 billion in the second quarter, slightly ahead of total
expenses that grew by 8.3 per cent to Sh66.56 billion in the three
months to June.
At 15.6 per cent, the profitability of Kenyan banks
is more than triple the rate of projected economic growth which the
World Bank downgraded to 4.7 per cent early this month, citing the many
challenges including drought, insecurity, fiscal expansion and
implementation of devolution.
The performance of the banking sector is also far
ahead of key sectors of the economy such as manufacturing, tourism and
agriculture.
But analysts said this is not unique because the
financial services sector — which is the provider of the money that is
invested in the productive sectors — should ordinarily stay ahead.
“Banks have continued to enjoy the same interest
rates they agreed for past loans. This is an income stream that remains
quite steady regardless of the performance of the borrowing entities
hence the stready earnings stream,” said Burbidge Capital head of
research Vimal Parmar.
The interest rate spread — the margin between the
deposit and lending rate — remains at an average of 10 per cent and has
become a major battleground in the ongoing public debate on the high
cost of loans.
Banks argue that the high cost of funds has made it
difficult for them to bring down lending rates but critics argue that
it is not the floor but the margins that hurts the borrowers most.
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