Banks profit grows slowly in the first 3 months of 2015

Money Markets

Analysts say financiers paying higher interest rates to attract deposits. PHOTO | FILE  

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Analysts noted the banks were grappling with tight liquidity, forcing them to pay higher interest rates to attract deposits.

Kenyan banks posted slower quarter-on-quarter pre-tax profit growth of 11.6 per cent to Sh37.7 billion as lending cooled off in the first three months of the year.

The lenders had previously recorded 18.4 per cent profit growth against a loan book expansion of 5.6 per cent—compared to 3.5 per cent this year. At the time the profit stood at Sh33.4 billion according to Central Bank of Kenya (CBK) credit officers’ survey.

Analysts noted the banks were grappling with tight liquidity, forcing them to pay higher interest rates to attract deposits. Customer savings held by the banks rose by 3.4 per cent to Sh2.41 trillion. CBK’s aggressiveness in mopping up cash as it sought to protect the shilling has been a key source of the tight liquidity.

“The growth is still good with GDP growing at five per cent. It shows banks are able to place more in an economy that is not growing at an equivalent pace,” said Standard Investment Bank head of research Francis Mwangi.

In the year-to-date the lenders loaned out Sh60 billion to the private sector pushing their loan book past the Sh2 trillion mark for the first time to Sh2.03 trillion.

“The demand for credit generally remained constant in six economic sectors and increased in five economic sectors in the quarter ended March 2015,” said Central Bank.

Banks’ total assets grew at a faster pace of 20 per cent to Sh3.4 trillion from Sh2.8 trillion in December. Mr Mwangi attributed the slower growth in profits compared to asset expansion to lower interest margins resulting from the tight liquidity.

The banks have also been under increased pressure to lower interest rates charged on loans especially with the introduction of a standardised pricing mechanism pegged on the Kenya banks’ reference rate (KBRR).

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At the same time shareholder funds in the banking sector grew marginally, by 0.7 per cent to Sh534 billion despite the coming into effect of higher minimum capital requirements at the beginning of the year.

Mr Mwangi said the banks will need to raise capital soon if they are to continue enjoying the same level of growth though.

Commercial banks have till the end of this month to release their first quarter financial performances. Some of those that have published include Equity, KCB and Co-op Bank.

Co-op has reported the fastest growth of 31.5 per cent in pre-tax profit while the others are clustered around the industry average with KCB at 13.5 per cent and Equity 13.1 per cent.

Central Bank is however going forward cautious of non-performing loans which are the largest factor affecting the soundness of financial institutions. But according to the survey, senior bank credit officers expect the levels of non-performing loans to remain constant in most sectors of the economy during the next three months.

The sectors include agriculture, energy, manufacturing, trade and financial services.