Kenya banks get boost from returns on loans, advances, despite slow growth

Corporate News

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Manufacturing and building sectors responsible for growth in first two quarters. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• Data from CBK shows that domestic credit increased by $4.51 billion (21.7 per cent) in the 12 months to September compared with $2.83 billion (15.7 per cent) in a similar period in 2013. The increase was largely reflected in growth of credit to the private sector which accelerated to 24.5 per cent in the year to September 2014 from 17.4 per cent in a similar period in 2013.
• The banking sector gross loans and advances rose to $21.2 billion in September up from $16.91 billion in September 2013, translating to a growth of 25.3 per cent. The growth was attributed to increase in lending to persons/households, trade, manufacturing, transport and communication and real estate sectors.
• In June, private sector credit growth hit a 28-month high of 25.8 per cent year-on-year, with credit to transport & communication, financial services and energy sectors being the key drivers.

Kenyan banks posted a better-than-expected performance helped by flourishing transaction-based income and growing returns on loans and advances as private investors replenished their loan stocks
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In the first two quarters of 2014, the economy grew by 4.4 per cent and 5.8 per cent, respectively, compared with growth of 6.4 per cent and 7.2 per cent in the first two quarters of 2013, according to the Central Bank of Kenya (CBK).

Growth in the first and second quarters of 2014 was supported by improved performance in manufacturing and construction. Agriculture recorded a 5.9 per cent growth in output in the first quarter and 5.5 per cent in the second compared with a 5.1 per cent increase in the first quarter of 2013 and a 6 per cent increase in the second quarter of 2013.

Unfavourable weather conditions in the first half of 2014, however, resulted in increased prices for food items such as maize and beans even as most indicators of performance in agriculture in the year to August pointed to slowed growth.

The private sector continued to dominate bank lending, accounting for 79.3 per cent of total lending in September 2014 compared with the 18.5 per cent share of the government.

The lenders appear to be on track towards delivering super profits, having declared double-digit growth in the first nine months (January-September.)

The global economic slow down and falling commodity prices are likely to have a knock-on effect on the local banking industry. The World Bank, however, expects Kenya’s economy to grow by 4.7 per cent in 2014 and by 5 per cent in the next two years if the country maintains macroeconomic stability.

Diarietou Gaye, World Bank country director for Kenya, said the country’s economy remains fairly resilient, and increasing investments in infrastructure and human capital will strengthen prospects for higher growth and regional competitiveness.

Key challenges, however, she said, include drought, insecurity, fiscal expansion and implementation of the devolution process.

While it is the largest and most diversified economy in East Africa, Kenya’s average growth rate of 4.6 per cent in the past decade has been low relative to its peers in the region and throughout Africa, according to the World Bank

“The low growth rate has limited the country’s ability to significantly reduce poverty and inequality, reflected in wide disparities in opportunities and outcomes between regions, gender and the growing youth population,” says the Bank.

According to the Central Bank, the Kenyan banking sector registered improved growth in assets in the year to September driven by growth in deposits, injection of capital and retention of profits. Deposits from customers, which form the major source of funding for the banking sector, accounted for 73.1 per cent of total funding liabilities.

The global price of crude oil has dropped to $60 a barrel for the first time in five years as producers failed to control the excess supply.

Crude oil has dipped about 45 per cent this year as the Organisation of Petroleum Exporting Countries (Opec) which commands 40 per cent of the world’s supply sought to protect its market share amid a US shale oil boom that is aggravating the global glut.

“The banks’ performance this year has largely been driven by increased loan books and improved operational efficiency through the use of information technology. Interest rate margins have also remained fairly stable,” said Johnson Nderi, corporate finance manager at ABC Capital.