Equity Bank Kenyatta Avenue Branch in Nairobi. PHOTO | DIANA NGILA | NMG
Summary
- Banks have been forced to become more creative in their income generation methods since Parliament imposed controls on the cost of loans
- The refuge of government securities has also tightened due to falling yields on Treasury bonds and bills
- An expected shift back to customer loans by banks is likely to grow further the amount they rake in from fees and commissions.
Bank customers paid Sh84.1 billion in fees, commissions and
service charges in the six months to end of June, as the lenders devised
new channels of boosting their revenue to compensate for lower interest
income from loans.
An analysis of the half-year
performance for 39 out of 40 Kenyan banks shows the lenders’
non-interest income increased by Sh12 billion (16.8 percent) in the
first half of the year, helping to cover for slimmer interest margins.
The
banking sector data shows non-funded income was the fastest-growing
revenue stream for the lenders, driving the growth of their after-tax
profit in the six months by 14.2 percent to Sh67.12 billion.
Interest
income from customer loans, which is the banks’ core revenue stream,
went up by only 1.3 percent or Sh1.86 billion in the period to stand at
Sh145 billion. On the other hand, interest income from government
securities rose by nine percent or Sh5.5 billion to stand at Sh66.6
billion.
Banks have been forced to become more creative
in their income generation methods since Parliament imposed controls on
the cost of loans in September 2016, which put a ceiling on the margins
they can extract from their loan books.
Falling yields
The refuge of
government securities has also tightened due to falling yields on
Treasury bonds and bills, amid pressure on the government to curb its
borrowing costs.
The increased use of digital platforms
to disburse loans and handle transactions has opened new sources of
fees and commissions for banks, helping them to navigate the interest
rates cap.
Lenders have also increased the amount of
fees and service charges on loans as a way of compensating for the loss
of margin and inability to price in customers’ default risk.
"Most
of the banks, especially the large lenders, are using these digital
platforms to do a lot of lending. These products have facility fees,
which the banks are leveraging on to grow non-funded income," said
Patrick Mumu, an analyst at investment bank Genghis Capital.
The
digital lending platforms operated by Tier One banks include Commercial
Bank of Africa’s M-Shwari, KCB M-Pesa, Equity Bank’s Equitel and
EazyApp, Barclays Kenya’s Timiza and Co-operative Bank’s M-Co-op Cash.
They
have quickly gained millions of users, who are attracted by the ease of
accessing loans and the convenience of banking without visiting
physical branches.
Fees charged on loans are also not
counted as part of interest charges, hence banks can load them above the
capped rate of 13 percent.
"Since the capping of
rates, we have seen a general rise in fees and commissions charged by
banks for various facilities," said Mr Mumu.
The
analysis of banking data shows that the large lenders, who control more
than 80 percent of the market, have taken the lion’s share of non-funded
income.
Equity Bank leads
Equity Bank
led the sector in the six months with non-funded income of Sh16.5 billion, up from Sh13.2 billion in the same period last year.
KCB
grew its non-interest income by 15 percent to Sh13.2 billion, while
that of Co-operative Bank went up by 25 percent to Sh8.8 billion.
Stanbic Bank increased its income from non-interest sources by 10 percent to Sh5.8 billion.
Fees
and commissions from forex trading and handling of the growing
remittances from abroad have also helped banks to grow their
non-interest earnings.
Larger banks which are dominant
in forex trading have particularly gained from this, while leveraging on
their international linkages to offer Kenyans in the Diaspora a
platform through which to send money home.
Monthly
remittances from abroad in the first six months of 2019 have averaged
Sh25 billion ($241.62 million), compared to an average of Sh23.8 billion
($229.75 million) in the first six months of last year, and Sh15.3
billion ($147.93 million) in a similar period in 2017.
Customer loans
An expected shift back to customer loans by banks is likely to grow further the amount they rake in from fees and commissions.
Banks have indicated a willingness to lend more to the private sector due to the falling government paper yields.
The
potential review of the rate cap, which the Treasury is trying to have
repealed in Parliament, could also see them trooping back to their
customers.
While their stock of government securities
remains high at Sh1.3 trillion, having grown by Sh152 billion or 13.2
percent year-on-year, the loan book is also expanding at a faster pace
than last year.
It grew by Sh172 billion or 7.1
percent to Sh2.62 trillion between June 2018 and June 2019, compared to a
growth of 2.5 percent or Sh58 billion between June 2017 and June 2018.
No comments :
Post a Comment