Why Kenyan Banks are less profitable

June 19, 2018 Newsroom

Despite top-tier banks reporting impressive results at the first quarter, the sector saw a decrease in return on assets from 2.67 percent to 2.62 percent.

Profit in the quarter ended December 2017 decreased from Sh21.86 billion to Sh11.46 billion in March 2018.

Lenders abandoned the credit market for private businesses especially SMEs which has seen the total loan book drop from Sh2.452 trillion to Sh432 billion according to the Central Bank credit survey.

CBK cited Agriculture, Mining and Quarrying, Trade, Tourism, Transport and Communication and Real Estate sectors as those that saw reduced lending in the year’s first quarter.

According to a ranking done by investment firm Cytonn, among listed lenders, Housing finance loan book shrunk the most by almost 12.5 percent followed by National Bank at 12 percent decrease.

However after increasingly lending to the state, the total bank balance sheets grew to Sh4.08 trillion in March 2018 from Sh4.05 trillion in December last year.

Deposit, on the other hand, grew from Sh2.95 trillion to Sh2.98 trillion in what CBK said was a better saving culture as Kenyans increased local currency deposits.

In a testament to bad economic times, bad loans continued to climb with non-performing loans to gross loans increasing from 10.66 percent in December 2017 to 11.81 percent in March 2018.

Performance at the stock market was however on the upward trend which registered an overall increase in return on equity to 21.78 percent in March 2018 from 20.83 percent in December 2017.

There was a considerable decline in the shareholders’ funds compared to the profitability.

Despite this and the introduction of the International Financial Reporting Standards (IFRS) 9 core capital to total risk-weighted assets increased slightly from 16.05 percent in December 2017 to 16.15 percent as at March 2018.

However, the total capital to total risk-weighted assets ratio decreased from 18.5 percent in December 2017 to 17.43 percent in March 2018.

Capital adequacy ratios assess a bank’s capital to the amount of risk held to protect depositors and promote stability and efficiency of financial systems around the world.

The Average Liquidity Ratio increased to 45.82 percent in March 2018 from 43.7 percent in December 2017. There was an increase in both total liquid assets total and short-term liabilities.