Kenyan banks report growth in profits from government business

Sunday August 19 2018

Mobile money, agency banking and non-branch operations were the new cash cow as well as optimism about the removal of interest rate caps.


Two top Kenyan banks have reported growth in profit in the first half of 2018, driven by government securities even as lending to the public stagnates.

KCB Group and Equity Bank on Thursday announced profit after tax of $121 million and $110 million respectively, even as the impact of the interest rate cap could be seen in their reduced lending to the private sector.

While releasing the financial results on Thursday, KCB Group chief executive Joshua Oigara said the business showed resilience in a rough operating environment further complicated by credit tightness in key markets, to report 17.48 per cent growth in profit.

Its loan book marginally grew by 4 per cent to $4.21 billion.

“We are on track to delivering on our 2018 targets on the six strategic initiatives. We are seeing a more robust business that is responsive to our model of boosting non-funded activity, improving our financial strength to consistently delivering stronger shareholder value,” said Mr Oigara.

Total income grew 3 per cent to $356 million, from $346 million, riding on a surge in both interest and non-interest income.


The contribution of non-funded income at 32.3 per cent of the total revenues was in line with the bank’s agenda to deliver at least 40 per cent of the income from digital financial services by 2020.

Improved liquidity

KCB Group, which operates in Uganda, Kenya, Tanzania, Rwanda, Burundi and South Sudan recorded a 7 per cent decline in operating expenses to $185 million from $199 million, attributed to improved staff costs and loan loss provisioning.

The region’s largest bank by assets also saw its balance sheet grow by 6 per cent to $6.67 billion from $6.3 billion, driven by increased deposits and gross customer loans despite controlled interest rates.

The bank’s deposits rose to $5.25 billion from $4.8 billion, a 9 per cent jump, resulting in an improved liquidity position.

James Mwangi, Equity Group CEO, reported a 7 per cent growth in the bank’s balance sheet to $5.42 billion, from $5.05 billion, attributed to growth in customer deposits of 9 per cent to $3.94 billion, up from $3.63 billion.

Regional subsidiaries’ share of group assets grew by 21 per cent to reach $1.42 billion, while international lenders increased their longterm funding to the group by 16 per cent to $530 million, from $460 million.

Reduced tensions

“A dramatically changing environment has seen political risks in South Sudan and Kenya decline with the collaborative peace initiatives taking root. The Democratic Republic of Congo has witnessed lowered political tension as preparations gather momentum for the general election due later this year,” said Mr Mwangi.

Equity’s investment in government securities grew by 37 per cent to $1.59 billion, from $1.16 billion while net loans to customers grew by 4 per cent to $2.75 billion up from $2.65 billion, reflecting the impact of interest rate capping on private sector lending.

Equity recorded a 10 per cent increase in interest income to $254 million, from $230 million, while its non-funded income fees and commissions grew by 2 per cent, attributed to a 29 per cent growth in trade finance income, 23 per cent growth in merchant banking commission, 27 per cent growth in forex capital gains, 35 per cent growth in Swift and RTGs income, 54 per cent growth in bond trading income and 165 per cent growth in diaspora remittances.

The bank’s regional subsidiaries grew their profitability by 62 per cent to $28 million, enhancing their contribution to the group’s profitability.

Equity saw 97 per cent of its transactions carried out outside the branch with mobile devices processing the lion’s share of transactions at 78 per cent, while agents process 12 per cent of transactions while 93 per cent of all successful loan applications were received and processed through mobile lending.

Delayed payments

The bank also saw a rise in its non-performing loans to 8.7 per cent up from 7.3 per cent.

Its loan loss provision grew by 22 per cent to $95 million billion year-on-year. “The non-performing loans grew as a result of stress in large enterprises. This was occasioned by the timing difference arising from late and delayed payments to contractors and service providers by the county and central governments,” Mr Mwangi said.

On Wednesday, Barclays Bank, which will in two years be rebrand to Absa, announced a profit after tax of $38 million, which saw its total income increase by 5 per cent to $157 million.

The bank’s profits were driven by its its investments in government securities, which grew by 62 per cent.

Barclays said its net interest income posted a 4 per cent growth as a result of an 8 per cent increase in customer loans to $1.76 billion, largely driven by scheme loans, general lending, trade and mortgages.

The bank also saw its customer deposits grow by 15 per cent to $2.17 billion. Its non-performing loans ratio grew to 3.2 per cent from 2.3 per cent in 2017.

Stanbic Bank Kenya saw its half year results more than double to $34 million from the $17 million attributed to non-interest income, which grew by 34 per cent, accounting for the half of the bank’s total revenues.

The bank also saw its customer deposits grow by 21 per cent to $1.65 billion, while its net interest income rose to $56 million, up from $49 million, driven by growth in loans and advances, which stood at $1.37 billion.

Co-operative Bank also recorded a 7.6 per cent jump in its after tax profits to $99.8 million saw its total interest income increase by 7.9 per cent to $208 million driven by a 17.45 per cent increase in the interest income from government securities from $38.7 million to $45.5 million.

The bank also saw its interest income from loans growing by 5.7 per cent to $161.3 million.