Shareholders of Kenya’s seven-biggest banks are set to get Sh34
billion in dividends, representing a 13.6 percent increase from last
year. This is in a sharp contrast to the fate of borrowers who struggled
to service their loans, going by an analysis of the lenders’
performance for the year ended December 2018.
The
results data from seven of the eight tier-one lenders -- as per the
Central Bank of Kenya classification -- shows that their cumulative
dividend cheque will grow by Sh4 billion compared to the 2017 payout.
Commercial
banks are by law supposed to release their annual results by the end of
March, meaning that all the lenders have until Sunday to publish their
2018 results.
The banks’ dividend return is among the most attractive in the
economy at present, outperforming the one-year Treasury bill which in
2018 averaged 10.5 percent yield.
The lenders also
outperformed the real estate sector, whose rental yields rose by 9.5
percent in Nairobi and its environs, while house sale prices went up by
8.5 percent in 2018 as per a survey by realtors HassConsult.
The
rise in the banks’ dividend payment matches their profit increase,
having grown their net earnings by 13.6 percent or Sh10.2 billion to
Sh85.3 billion.
The Nairobi Securities Exchange (NSE)
listed lenders have also been under pressure from shareholders to give
them a favourable dividend return (yield) at a time when capital gains
on their stocks have been depressed.
Canaan Capital
chief executive Rufus Mwanyasi said the increase in dividends payout is
justified by the higher profits, but cautioned that the deteriorating
quality of the lenders’ loan book is a cause for concern.
“This is a way of shoring up their share prices by enticing
demand from investors through attractive dividend yields,” said Mr
Mwanyasi.
“Asset-wise they have grown, as has their
profitability, but the quality of the balance sheet has gone down as the
non-performing loans portfolio keeps going up.”
The tier one banks that have released their results so far include KCB
, Equity , Co-operative Bank , Standard Chartered , Barclays Kenya , Diamond Trust Bank
and Stanbic. Only the non-listed Commercial Bank of Africa of the top-eight is yet to release its financials.
The big lenders control 66 percent of market share in the industry, and up to 80 percent of sector profits.
Non-performing
loans among the seven lenders went up by 17.2 percent or Sh22.3 billion
in 2018 to Sh152 billion, their results show.
Latest
CBK data shows the non-performing loans ratio for the entire banking
sector stood at 12 percent at the close of 2018, compared to 10.6
percent at the end of 2017.
This is an indicator that as the owners of the banks enjoy good
returns, their customers are increasingly struggling to repay loans even
with the rate cap law limiting the maximum interest rate at 13 percent.
Majority
of the lenders have however managed to avoid a hit on their profits
through increased provisioning for the bad debts, taking advantage of a
one-off opportunity to pass their provisions through capital reserves
instead of the income statement during the transition to the IFRS 9
accounting standards.
The top-tier lenders have
therefore cumulatively cut provisions on the income statement by 30.4
percent or Sh8.3 billion (to Sh19 billion), which has played a
significant part in the profit growth for the year and in turn the
higher dividend payout.
Only Equity and Stanbic banks raised their provisions in 2018 among the seven who have reported so far.
According
to Mr Mwanyasi, the lenders are likely to rely on cost-cutting this
year — by turning to digital platforms — to absorb any potential hit on
profit now that they have to provision for all doubtful loans through
the income statement.
The higher profits have also been largely driven by higher investment in risk-free government securities.
The
lenders increased their investments in the government paper by 9.7
percent last year to Sh700.6 billion, in turn seeing their interest
earnings from the securities go up by 13.7 percent or Sh62 billion to
Sh76.3 billion.
They grew their loan books at a slower
pace of 3.6 percent or Sh57.3 billion to Sh1.63 trillion, and saw the
interest income from loans to customers go up by a similar rate to
Sh192.9 billion.
Non-funded income (NFI), which banks
increasingly turned to in the wake of the signing of the rate cap law in
August 2016, also under-performed for top-tier lenders last year. They
cumulatively saw their NFI go up by just 0.9 percent in 2018 to Sh95.5
billion.
This was partly due to the shift to government lending as opposed to customer loans which attract fees and also
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