Banks To End Dividends Drought In Profitable Turnaround

 

By Kepha Muiruri For Citizen Digital

Commercial banks are expected to end the drought on paying shareholder dividends next month with a turnaround expected in the upcoming full-year results.

In March, the lenders are set to make the financial disclosures which are widely expected to show a turnaround in profitability as earnings normalize after the onset of the pandemic.

“We expect the banking sector to report an overall increase in profitability with our profit before tax (PBT) estimate range at Ksh.190 billion to Ksh.200 billion. We expect the higher earnings to result in the resumption of dividend payouts,” said analysts at Sterling Capital.

Improving asset quality and declining loan-loss provisions complemented by an improving economic performance are set to anchor down the expected industry’s performance.

Already, banks have been reporting triple digits growth in earnings with profit doubling in the second and third quarters, mostly from the write back of loan-loss provisioning costs into the profit and loss account.

For instance, Equity and KCB easy doubled their third quarter earnings with loan-loss provisioning costs falling by 65.2 and 53.2 per cent respectively.

Further, regional acquisitions including Equity’s purchase of Banque Commerciale Du Congo, KCB’s Banque Populaire du Rwanda (BPR) and I&M’s buy out of Orient Bank Limited Uganda are expected to shore up earnings by increasing interest earning assets.

Rebounding interest income from increasing yields on loans & advances and government securities are further expected to firm up the banking sector earnings.

In 11 months to November 2021, cumulative pre-tax profits by banks had grown by 66 per cent to Ksh.178 billion from Ksh.107.7 billion a year earlier.

Banks such as Equity are set to end a two-year drought in dividend payments having skipped the nearly annual routine by keeping a cash preservation stance.

Of the nine listed commercial banks, only four have issued interim dividends in the 2021 fiscal year including Stanbic Bank Kenya, NCBA, Standard Chartered and KCB.