The increased use of mobile technology and agency banking has boosted the earnings of East Africa’s retail banks.

Increased competition and pressure by governments to lower lending rates has seen commercial banks report lower interest income on loans and advances, prompting a major policy shift towards fee-based revenue from banking transactions such as ATMs, forex and point of sale transactions.

Analysts say that banks that control their expenses end up with high returns.

Kenyan banks with a strong presence in the retail market recorded a surge in profit in the first quarter, with analysts projecting that the lenders’ heavy investment in technology and branchless banking will drive profit this year.

“Net interest margins have come under pressure. We are looking at revising our financial estimates downwards for banks this year. Net interest income is coming down as lending rates decline, but deposit rates are not falling by an equal margin and this will impact on profitability,” said Francis Mwangi, the head of research at Standard Investment Bank.

According to Mr Mwangi, 67 per cent of the profits generated by the banks are driven by lending, with 33 per cent from other fee-based banking activities.

Kenya Commercial Bank, Equity Bank and Co-operative Bank posted double-digit profit figures during the first three months of this year.

The impressive performance has resulted in a rise in their stocks at the NSE.

The first quarter 2015 profit before tax for KCB, the region’s largest lender by branch network, rose 12 per cent to $64.89 million, from $58 million, with growth in fees and commissions from new business lines going up by 19 per cent.

KCB’s stock at the NSE gained 2.5 per cent to trade at $0.6  per share on Friday last week, from $0.5 the previous day.

The bank’s loans and advances increased 27 per cent to $3 billion, from $2.43 billion, with 34 per cent of the loans channelled to the personal/household sector, and 16 per cent to real estate.

Some 91 per cent of the profit was from Kenyan operations, with regional subsidiaries such as Rwanda, Uganda and Tanzania each contributing just one per cent.

KCB’s operations in South Sudan yielded six per cent of the group’s profit; the subsidiary in Burundi has yet to make money. Customer deposits went up 27 per cent to $4.13 billion from $3.26 billion.

The Group’s net interest income grew 11 per cent to $96.35 million from $86.66 million while gross fees and commissions went up 19 per cent from $28.12 million to $33.43 million.

Total operating expenses declined 10 per cent to $73.95 million from $67.08 million.

READ: KCB Group to expand mobile banking services

The bank is set to upgrade its core-banking T-24 software to Version 14 from Version 8 at an estimated cost of $5 million in the next year.

Co-operative Bank’s stock at the NSE grew 3.41 per cent to trade at a historic high of $0.23 per share last week, after the lender reported a 30 per cent growth in profit during the first quarter of this year. Profit rose 30 per cent to $46.87 million during the first three months of the year, from $36.14 million in the same period last year.

The profit is attributed to restructuring by global advisory firm McKinsey & Company to control costs and improve operational efficiency.

Diversified investments

The growth was attributed to increased volume of transaction-based income and revenues from the bank’s diversified investment portfolio, which includes stockbrokerage, consultancy, insurance, and mortgage and fund management.

During the period under review, Co-operative Bank’s net interest income grew 21 per cent from $50.2 million to $60.93 million , while non-funded income rose eight per cent from $27.7 million to $29.89 million . Total operating expenses increased three per cent from $43.33 million to $44.79 million.

READ: Co-op Bank in major shift to ATMs, mobiles, Internet and agency banking

Equity Bank’s stock at the NSE gained 0.53 per cent to trade at $0.49 per share.

Equity’s first quarter pre-tax profits increased by 13 per cent to $63.54 million, from $56.25 million, largely due to “the Group’s sustained investments in mobile and agency banking, payment systems and money transfer as well as diaspora remittances,” said Dr James Mwangi, Equity’s chief executive and managing director.

“We are optimistic that the growth momentum will be maintained throughout the year with a number of new products and services set to be launched in the coming months,” he added.

Equity’s total operating income grew 19 per cent from $115.62 million to $137.5 million, buoyed by significant successes in driving non- funded revenues. Total expenses grew by 24 per cent to $73.95 million, on the back of investments made in expanding the IT capacity in 2014.

Bank of Kigali

The Bank of Kigali reported a 7.8 per cent increase in net income to $7.7 million for the quarter ended March 31.

The bank’s total assets grew by 9.7 per cent to $723.7 million, while net loans and advances increased by 22.3 per cent to $366.7 million in the same period.
The bank expanded its agency banking network to 909 agents.

During the same period the bank had 70 branches, 76 ATMs and 656 POS terminals. It had 242,041 Mobiserve users compared with 230,636 users last year.

“Our results for the first quarter in 2015 indicate that we began the year on a high note. These numbers indicate that 2015 will be an even more successful year in terms of creation of shareholder value. We have concluded partnerships with telcos to ensure that there is convergence with mobile money providers. This partnership will project the bank to the centre stage of financial inclusion,” said chief executive officer James Gatera.

I&M Bank Rwanda recorded a drop in its net profit to $1.62 million, from $1.67 million. Its net interest income dropped to $3.57 million from $3.71 million. The lender’s operating expenses increased to $3.85 million, from $3.54 million.

Kenya’s NIC Bank, whose stock fell 2.56 per cent to $0.59 per share, recorded a 6 per cent growth in profit in the first quarter of 2015 to $14.89 million.