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Kenyan banks post 15.6pc rise in pre-tax profits

Monday August 05 2013
KCB

Customers at a KCB banking hall. CBK data shows that the banking sector profit before tax hit Ksh61.5 billion ($713 million) for the period ended June this year up from Ksh53.2 billion ($631.5 million). Photo/FILE

Kenya’s banking sector’s profit before tax rose by 15.6 per cent for the period ended June this year buoyed by a drop in interest paid on deposits as lenders encouraged customers to use bank agents who are offering added convenience while saving the banks costs.

Data released by the Central Bank of Kenya (CBK) on Monday shows that the banking sector’s profit before tax hit Ksh61.5 billion ($715 million) for the period ended June this year up from Ksh53.2 billion ($631.5 million) posted for the period ended June 2012.

The growth in profits, which has already been reflected by Equity Bank, East Africa’s largest bank in terms of deposit accounts which released its results last week, is also expected to be reflected in other large listed banks such as Barclay Bank, CfC Stanbic, Standard Chartered and Cooperative Bank.

Barclays Bank and National Bank of Kenya are expected to release their results this week, giving investors a glimpse of how their strategies have helped them navigate through a season when interest rates were on a downward trend.

“The banking sector is expected to sustain its growth momentum on the backdrop of a stable macro-economic environment, domestic and regional expansion by banks and the increased economic activities through the devolved system of government,” said CBK in a statement.

The number of banks with agents rose to 13 during the period ended June this year from 10 during the period ended June last year while the number of agents in the banking sector rose by 63.01 per cent to 19,649 from 12,054 over the same period of time.

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Agents performed 58.6 million transactions valued at Ksh310.5 billion ($3.6 billion) over the first six months of this year almost three and a half times more than the 18.7 million transactions valued at Ksh93.1 billion ($1.1 billion) performed in the first six months of last year.

Equity Bank last week said that the use of agents, who stood at 7,632 is providing a cheaper avenue for the mobilisation of deposits.

The bank, which said that the model is also being rolled out in Rwanda and Tanzania, is not making significant capital expenditure, spending on rent or staff costs and is only paying commissions to the agents.

CBK said that Kenya’s banking sector’s loan book rose by 15.38 per cent to Ksh1.5 trillion ($17.4 billion) as at the end of June 2013 from Ksh1.3 trillion ($15.4 billion) as at the end of June 2012.

Deposits rose by 11.76 per cent to Ksh1.9 trillion ($22 billion) from Ksh1.7 trillion ($20.1 billion) over the same period of time.

The contribution of interest income from loans and advances to total income had dropped by 4.2 percentage points to 57.8 per cent as at the end of June this year from 62 per cent as at the end of June last year.

This came after a slight decline of lending rates which came after a 9.5 percentage point cut in the Central Bank Rate to 8.5 per cent between January and June this year.

On the other hand, the contribution of interest paid on deposits to total expenses fell by 11.4 percentage points to 30.6 per cent from 42 per cent over the same period of time, helping the sector post the increase in profits.

The contribution of fees and commissions and interest from government securities to total income rose to 18.4 per cent and 15 per cent respectively from 17 and 13 per cent while the contribution of staff costs and other expenses rose to 28.9 per cent and 23.8 per cent respectively from 24 and 20 per cent.

Equity Bank posted a 16.75 per cent growth in profit after tax to Ksh6.3 billion ($73.3 million) for the period ended June this year compared to Ksh5.4 billion ($64.1 million) posted for the period ended June 2012.

“Given that the first quarter was tough because of the elections and the reduction of the benchmark rate by the Central Bank, I think the performance was good. It will be interesting to see how other banks have performed and where the profits are coming from,” said Vimal Parmar, head of equity research at Burbidge Capital.

Its subsidiaries however, which are in Tanzania, Uganda, Rwanda and South Sudan contributed a combined Ksh490.3 million ($5.7 million) to profits after tax in the first six months of this year, 16.41 per cent down from Ksh586.54 million ($6.9 million) contributed over the first six months of 2012.

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