How banks are making Sh1bn profits daily

A customer is served at the Kenya Commercial Bank (KCB) in Nairobi on January 24, 2018. PHOTO | SIMON MAINA | AFP

Commercial banks are making nearly Sh1 billion daily in profits this year, reaping the benefits of cost-cutting and renewed demand for credit in a recovering economy.

The lenders booked a pre-tax profit of Sh97.4 billion in the first five months of this year, Central Bank of Kenya (CBK) data shows, translating to Sh910 million daily for each working day—based on a five-day week with light weekend transactions on Saturday when the lenders open for half the day.

The five-month earnings represent a 27 percent increase on the Sh76.4 billion they earned over same period a year ago. At this pace, the sector is on course for a new full-year pre-tax profit record of over Sh200 billion.

Record earnings will translate to higher dividends for shareholders, who banked a cumulative payout of Sh51.7 billion last year.

Executives driving the growth can also anticipate fatter bonus payments, which are usually tied to performance and value for shareholders.

These bonuses, especially for chief executives, can be as much as two times the annual pay packet, leaving the top-paid bankers with more than Sh100 million in annual earnings.

The banks have benefited from a rise in demand for loans in the economy this year as key sectors such as manufacturing, trade and transport continue their Covid recovery. Annual private sector credit growth jumped from 8.8 percent in January to 11.9 percent in May.

Analysis on banks’ published financial statements in the quarter to March shows that the nine listed tier one lenders made a total of Sh116.9 billion from interest income, up Sh100.1 billion a year earlier.

They have also been cashing in on the government’s high appetite for borrowing, pumping billions into treasuries that carry interest rates of between 8.3 percent and 14 percent.

The interest earnings have been augmented by higher revenue from fees and commissions from lending services and foreign exchange trading, allowing the lenders to mint an average of Sh19.4 billion every month.

On the flip side, many bank customers are going through hard times due to a sharp jump in the cost of living, with inflation currently at a 58-month high of 7.9 percent.