Local banks have stretched their profitable run into the new year with the industry registering a 13.6 per cent growth in pre-tax profits for the quarter ended March 2023.
New data from the Central Bank of Kenya (CBK) shows the lenders’ profits before tax hit Sh65.1 billion from Sh57.3 billion at the same time last year.
The CBK has attributed the improved performance of the industry to greater cost efficiencies, which resulted in lower operating costs during the period.
“The increase in profitability was mainly attributable to a higher decrease in quarterly expenses by Sh5.2 billion and an increase in quarterly income by Sh2.7 billion,” said the CBK.
Growth in banking sector income has been partially supported by an expanded balance sheet with gross loans increasing by 4.8 percent from the end of December to Sh3.852 trillion in March 2022.
Enterprises in financial services, transport and communication, and manufacturing sectors marked the largest uptake in newly disbursed credit facilities over the three-month cycle.
“The increase in gross loans was mainly due to increased credit granted for working capital purposes, and loans granted to individual borrowers,” the CBK added.
The banks’ aggregate balance sheets expanded by 2.7 percent to Sh6.772 trillion from Sh6.597 trillion at the end of last year.
Meanwhile, deposits that fall under banking liabilities increased at a slower 2.1 percent to reach Sh4.828 trillion in March.
Despite the improved profitability and asset base expansion, banks have marked a deterioration in asset quality with the ratio of the dud loans to the sector’s loan book topping 14 percent in the period from 13.3 percent in December.
The Q1 gross non-performing loans (NPLs) posted a 10.9 percent increase and wiped off the 4.8 percent increase in gross loans, which had partly diluted the worse-off asset quality.
The rise in NPLs implies that lenders could be forced to raise their provisioning levels on expected credit losses required by the stricter IFRS9 accounting standards.
Banks continue to post impressive sets of results as they retain the momentum created by their depth in multiple income streams. Stanbic Bank, which has been the first tier one lender to disclose its first quarter financials, has, for instance, posted an 84 percent growth in net profit to Sh3.89 billion in the three months.
The bank’s total operating income lifted off by 64.7 percent to Sh11.15 billion with non-interest funded income as the fastest source of revenues for the bank having grown to Sh5.74 billion from Sh3.03 billion.
Stanbic Bank continued to profit from the ongoing volatility in the local exchange rate to grow its forex trading income by more than two folds to Sh4.26 billion.
“During the quarter, the bank remained focused on executing its three-year medium-term strategy that started in 2021.
“The outcomes demonstrate our ability to create shared value and sustainable returns for shareholders and multiple stakeholders,” Stanbic Bank Kenya and South Sudan CEO Joshua Oigara stated.