Kenya banks set for another year of record profits

Money Markets

KCB Group CEO Joshua Oigara speaks during an investor a media briefing to announce the bank’s third-quarter financial results in Nairobi last month. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• The Kenyan banking industry’s total income for 11 months increased to Sh127bn compared to 2013’s full-year of Sh126bn.
• Analysts attributed the robust profit growth to the high interest margins that banks continue to enjoy while cutting on operating costs.
• Analysts, however, do not expect the profits growth to result in higher dividend payouts due to the impending higher capital requirements for banks.

Commercial banks braved the many challenges in the economy to close the month of November ahead of the full-year profits in 2013 — giving the clearest signal yet that they are on course to setting a new profits record this year.

The Central Bank of Kenya’s (CBK) latest report indicates that the lenders posted a Sh126.6 billion profit in the 11 months to November 30, compared to the Sh125.8 billion full-year pre-tax profit last year.

Analysts attributed the robust profit growth to the high interest margins that banks continue to enjoy while cutting on operating costs.

“Most banks have taken bold steps to bring down their cost to income ratios at a time when the interest margins haven’t changed much,” said Vimal Parmar who heads research at Burbidge Capital.

Official statistics also show a marked increase in lending between September and November, when the banks dished out Sh38 billion in loans to their customers and expanded the total loan book to Sh1.95 trillion.

Deposits rose at a slower pace with the savers having left additional Sh29 billion with the banks increasing total savings to Sh2.28 trillion.

Mr Parmar said the increased lending signalled rising optimism of Kenya’s growth prospects among investors.

The lenders’ performance cements the financial services sector’s position as not only the most profitable but also the most durable, having weathered Kenya’s security challenges and its impact on the key tourism sector.

READ: Kenyan banks make Sh71bn profits in 6 months

Analysts, however, do not expect the profits growth to result in higher dividend payouts due to the impending higher capital requirements for banks.

“You have to look at the return on investment (ROI). This increased profitability is on increased assets so if the ROI has dipped you don’t expect higher dividends,” said Johnson Nderi, the corporate finance and advisory manager at ABC Capital.

Beginning January, owners of banks are expected to pump in more of their own money into the businesses to enable the lenders take in more deposits and to lend more under regulatory requirements commonly known as capital ratios.

Some of the lenders such as DTB, NIC and CBA have raised additional capital through rights issues while others like Co-operative Bank plan to retain more of the profits to boost their capitalisation.

Analysts have also pointed out that Kenyan banks have been structured to grow especially after the monetary policy committee set a target for their lending to the private sector. Lending to the private sector is officially expected to grow at 25 per cent this year.

The sterling profits record has, however, not shielded the lenders from criticism for pricing credit too high resulting in a situation where their success is only at the expense of other segments of the economy that have to pay a high price for capital.