East African banks rank among world’s top performers

A shop with various agency banking counters in Nakuru. KCB, Equity, Diamond Trust, Co-Op bank have remained resilient. FILE PHOTO | NMG  

In Summary

• The banks weathered a tough operating environment in 2019 to post stronger growth while ...cushioning themselves against further shocks.
• KCB, Equity, Diamond Trust Bank and Co-operative Bank remained resilient in a tough operating environment to maintain an upward growth in profitability.
• They made significant strides in strengthening their balance sheets (assets) and increasing their Tier 1 capital in line with the Basel III requirements.

By The EastAfrican

East Africa's top banks are ranked among the world’s 1,000 best lenders. They weathered a tough operating environment in 2019 to post stronger growth while cushioning themselves against further shocks.

The monthly London-based international financial affairs publication The banker owned by the Financial Times Ltd, shows that KCB, Equity, Diamond Trust Bank and Co-operative Bank, which are largely retail banks, remained resilient in a tough operating environment to maintain an upward growth in profitability.

They made significant strides in strengthening their balance sheets (assets) and increasing their Tier 1 capital in line with the Basel III requirements.

Tier 1 capital is largely primary funding source for banks, reserved to ensure banking operations are not disrupted or shut down during periods when lenders make losses.

“Banks are taking advantage of opportunities in the EAC and providing their regional customers with seamless service delivery,” Habil Olaka, chief executive Kenya Bankers Association said.

According to the magazine, global banks’ total profit increased by a paltry two per cent to $1.13 trillion in 2019 from $1.11 trillion in 2018.

This is largely due to tighter regulations, high capital requirements, competition from financial technology firms and low interest rates in Europe and the US which made earnings and banking profit so difficult to sustain.

Lacklustre profits

According to The banker, shrinking banking assets in Europe and Central Asia, lacklustre profits everywhere and an uncertain economic environment paints a grim picture of the global banking industry’s earning prospects.

The ranking, which saw Chinese banks dominate the top four positions, measured the world’s best performing banks based on key parameters such as profitability, Tier 1 Capital, Assets, Return on Assets, non-performing loans ratio, total loans to assets ratio and profit on capital ratio.

KCB which is in Kenya, Tanzania, Uganda, Rwanda, Burundi and South Sudan improved its position to 717 from 809 last year after posting a 17.87 per cent growth in profitability to $332 million and increasing its Tier 1 Capital by 30.71 per cent to $1.07 billion.

Its balance sheet grew 11.96 per cent to $7.013 billion while the capital assets ratio increased to 15.39 per cent, up from 13.18 per cent.

The bank’s return on assets stands at 3.36 per cent, non-performing loans ratio (6.07 per cent) and the loans to assets ratio (65.83 per cent).

Equity, with over 14 million customers across the region, has operations in Kenya, Uganda, Rwanda, Tanzania, South Sudan, DR Congo and a commercial office in Ethiopia.

The bank’s position on the global 1,000 ranking fell to 844 from last year’s 799 partly due to a decline in the level of Tier 1 capital by 8.95 per cent to $772 million.

However, the lender managed to grow its profit by 7.32 per cent to $279 million and increase its level of assets by 10.81 per cent to $5.63 billion.

Its return on assets stood at 3.46 per cent, NPL ratio (7.85 per cent), loans to assets ratio (53.31 per cent) while its capital asset ratio declined to 13.72 per cent from 16.7 per cent

Co-operative Bank which has a regional subsidiary in South Sudan climbed one position to 950 from 951 last year, with its Tier 1 Capital increasing by 3.73 per cent to $571 million and total assets increasing by 8.31 per cent to $4.05 billion.

The bank made a 12.23 per cent growth in profit to $178 million but saw a slight decline in capital asset ratio to 14.08 per cent from 14.7 per cent. Its NPL ratio stood at 10.3 per cent, ROA (3.08 per cent) and loans to assets ratio (66.47 per cent).

DTB which has a foothold in Kenya, Tanzania, Uganda and Burundi came in at position 981 after increasing its Tier 1 capital by 13 per cent to $527 million and growing its balance sheet by 5.38 per cent to $3.7 billion.

Its earnings increased 10.41 per cent to $108 million while the capital asset ratio increased to 14.21 per cent. from 13.25 per cent.