Why only banks posted growth in quarter 1, 2024
CBK data shows bank profitability rose by 12.9 per cent in the first quarter of 2024 to Sh73.5 billion from Sh65.1 billion in the same period last year.
What you need to know:
- Equity Group grew its net interest income to Sh27.8 billion from Sh21.6 billion.
- KCB Group posted a growth of 69 per cent in profitability to overtake Equity Group as the most profitable bank.
Only the banking sector recorded faster growth in the first quarter of 2024, reflecting hefty profits lenders raked in from high interest rates they charged and increased borrowing by businesses cash-starved businesses.
Data from the Kenya National Bureau of Statistics (KNBS) shows that all other economic sectors posted slower growth in the first three months of 2024 compared to the same period last year, pointing to a tough operating environment characterised by rising defaults owing to the expensive cost of credit.
The financial and insurance sector grew by 7.0 per cent in the first quarter of 2024 compared to 5.9 per cent in the corresponding quarter of 2023, as commercial banks reaped from the expensive credit, they charged borrowers including the government.
Interest rate spread—or the difference between what banks paid depositors and what they charged borrowers—widened to a 31-month high of 5.76 per cent by the end of March this year, figures from the Central Bank of Kenya (CBK) show.
Earnings from loans
Stellar Swakei, a senior research associate at Standard Investment Bank said growth in the banking sector was supported by earnings from loans.
“Following the tax adjustments under the Finance Act 2023, the cost of doing business in Kenya increased and the banking sector responded with a notable 7.5 per cent average growth in net loans and advances to customers in the [the first quarter of 2024],” she said.
“Interest income also surged by an impressive 22.8 per cent, likely driven by higher lending rates following the Central Bank's rate hike,” the SIB official added.
Equity Group
KCB Group, which posted a growth of 69 per cent in profitability to overtake Equity Group as the most profitable bank, also recorded a decent growth in its loan book.
The lender’s first-quarter profit growth came on the back of interest income, mainly derived from lending, growing 40.8 per cent to Sh31.06 book.
Equity Group grew its net interest income to Sh27.8 billion from Sh21.6 billion.
After the CBK raised its benchmark lending rate to help ease inflation in the economy, banks reacted by also raising the cost of lending, a move that was also blamed for the spike in defaults.
The Central Bank Rate, which signals the cost of borrowing, was raised to 13 per cent in March 2024 from 9.50 percent in March 2023.
Bank profitability rose by 12.9 per cent in the review period to Sh73.5 billion from Sh65.1 billion in the same period last year, CBK data shows.
On Wednesday, KNBS reported that Kenya’s economy grew by a slower pace of five per cent in the first three months of 2024 compared to 5.5 per cent in the same period last year.
