By JAMES ANYANZWA

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KCB Group, the largest lender in the region by assets, after posting four consecutive quarters of declining profits that culminated in the lender skipping dividend payment for the year 2023, beat market expectations in Quarter 1, 2024 announcing a 69 percent growth in net profit to Ksh16.06 billion ($122.59 million).

With that, it reclaimed its position as East Africa’s most profitable financial conglomerate.

2023 was the first time KCB shareholders missed dividend payment in 21 years. The decision to retain dividends as well as the large reduction on statutory loan reserves has have been credited for bolstering KCB Kenya’s capital buffers.

KCB Group has also bucked the trend with regards to forex income, surging 81.2 percent year-on-year, which is further attributed to the growth in trade finance (possibly driven by mining business) after its entry in the Democratic Republic of Congo.

Read: Kenya banks book $100m forex gain from foreign units

The group posted a net profit of Ksh9.5 billion ($72.51 million) in the first quarter (January-March) of last year (2023), a 2.9 percent decline, compared with the same period in 2022.

The lender’s net profit further declined in the subsequent quarters of the year by 17.9 percent, 1.74 percent and eight percent respectively.

Paul Russo, who was appointed Group CEO effective May 25, 2022, termed the group’s good performance as a reflection of the “cleaning-up exercise” the lender has undertaken.

“We have been growing top line in the past two years. However, it didn’t translate to bottom line because we were cleaning up. We are seeking faster growth in top line while translating into bottom line because of the hard work, especially in 2023,” Mr Russo told The EastAfrican.

“Look at the numbers. when I took over, we downgraded certain loans and took non-performing loans (NPLs) down to 22 percent. I took that tough call to build a sustainable organisation.”

Mr Russo put the value of loans the bank downgraded to Ksh96 billion ($732.82 million), saying the ‘tough’ decision he took on bad loans early on when he took over at the helm of the bank is now paying off.

Read: Kenya banks earn margins of up to 10pc in forex transactions

“Notice that we took decision early,” he said.

KCB Group has operations in Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan, the Democratic Republic of Congo (DRC) and a representative office in Ethiopia

Its total revenues during the three months to March 31 increased by 31.6 percent to Ksh48.5 billion ($370.22 million) driven by both interest and non-interest (non-funded) incomes.

“I think the performance largely came above expectations as PBT grew by 53 percent to Ksh21 billion that was, indeed, impressive and that was largely driven by a faster growth in operating income relative to operating expenses,” said Ronny Chokaa, Senior Research analyst at AIB-AXYS Africa Investment Bank.

“I was impressed particularly by drastic drop in the cost to income ratio from 51. 2 percent to 43.3 percent. On the flipside, however, we are noticing a big surge in NPLs with the NPL ratio rising to 18.2 percent and the contribution coming largely from the manufacturing sector and the trade sector as well. The cost of credit has weighed down on the consumers’ and businesses’ ability to service their loans that is reflecting now in the numbers in as much as, yes, interest income from loans and advances has been on the rise. So, I think that is a tide to navigate or balance.”

The group’s interest income derived mainly from lending business grew by 40.8 percent to Ksh31.06 billion ($241.22 million) as the lender’s loan book expanded by 9.6 percent to Ksh1.09 trillion ($8.32 billion).

Non-interest income from fees and commissions on banking transactions grew by 17.7 percent to Ksh17.4 billion ($132.82 million) from Ksh14.79 billion ($112.9 million), raising the total operating income by nearly a third to Ksh48.5 billion ($370.22 million).

The group’s operating expenses grew by 18.3 percent to Ksh27.33 billion ($208.62 million) largely due to increased provisioning for non-performing loans (NPLs).

The group’s loan impairment charge increased by 53.4 percent due to downgraded facilities while gross NPLs stood at Ksh205.3 billion ($1.56 billion), putting the NPL ratio at 18.2 percent during the period under review.

The subsidiaries contribution to the group’s pre-tax profit (excluding KCB Bank Kenya) was Ksh17.9 billion ($136.64 million).

KCB’s performance during the first quarter of this year (2024) has lifted it to be the best performer in the region in in terms of profitability, both in growth and absolute profit numbers.

It was followed by Equity group whose net profit grew by 25.1 percent to Ksh15.39 billion ($117.48 million) from Ksh12.3 billion ($93.89 million) boosted by substantial contributions from regional subsidiaries in the Democratic Republic of Congo (DRC) and South Sudan.

Co-operative Bank posted 7.7 percent growth in net profit to Ksh6.58 billion ($50.99 million) from Ksh6.11 billion ($46.64 million) during the period under review.

NCBA recorded a 3.92 percent growth in net profit to Ksh5.3 billion ($40.45 million) from Ksh5.1 billion ($38.93 million), with regional subsidiaries in Uganda, Tanzania, and Rwanda delivering a combined Ksh705 million ($5.38 million), representing 13 percent of the group’s profit.

On the other hand, I&M group Plc increased its profit before tax (PBT) by 33 percent to Ksh3.6 billion ($27.48 million) from Ksh2.7 billion ($20.61 million).