As interest rates remain low, banks are finding new areas of investments
Banks are incredibly liquid institutions with the capacity to invest in a number of industries to create value for shareholders.
For a long-time, however, lenders have stuck to the low-hanging fruit of charging interest on loans to the private sector and the government to drive revenues.
However, since the rate cap was introduced curtailing the amount the lenders could make from loans and shining focus on the cost of debts, banks have had to take a different look at their assets to sweat them through innovative solutions to their customers.
Over the last few years, there has been a great focus on non-interest income, which is money made away from loans that go directly to enhancing the bottom line.
Absa Bank whose half-year net profits increased 12.9 percent to Kes6.3 billion has seen strong growth in non-interest income over the past few years even as it positions itself to scale solutions to customers and earn more returns from services.
The lender has seen an 11 percent increase in non-funded income to Kes6.4 billion on higher returns in the foreign currency market which saw a surge in volumes and margins.
Non-interest income also came from the lender’s Bancassurance arm, service and account maintenance fees as customers increased deposits by 7 percent to Kes281.6 billion.
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Besides non-interest income, the lender’s half-year revenue growth was also driven by a 21 percent jump in interest income to Kes14 billion as Absa enhanced lending to Small and Medium Enterprises (SMEs) to assist them to reposition for growth, recognizing the critical role they play in job creation and stimulation of the economy.
Customer loans recorded a 19 percent uptick to Kes262 billion, significantly boosted by trade loans, mortgages, and scheme loans as well as asset financing.
The lender’s CEO Jeremy Awori says it plans to further diversify revenues by increasing investment in areas it has limited presence including asset management, consumer payments, custody business and investment banking with an eye on advisory, mergers and acquisition.
“In the period, the Bank continued to invest in new and diverse business lines, which are significantly contributing to its growth. Non-funded income increased by 11 percent on the back of impressive growth in FX income, Bancassurance and assets management fees,” Mr Awori said.
Absa Bank has been a major player in Kenya’s financial landscape, engaged in personal and institutional banking, bancassurance and asset management.
The Bank has a regional and global footprint which enables it to offer end-to-end financial solutions to retail and institutional clients.
It has also been associated with a number of market firsts, such as the launch of the first ATM, WhatsApp banking, Sharia-compliant banking and unsecured lending.
The lender hopes to leverage its growing customer base whose deposits went up by 7 percent to Kes282 billion to lock them by providing not just loans but several services and cross-selling products.
The period also saw the enhanced investment in the Bank’s innovation and transformation agenda, resulting in the launch of an instant online account opening platform as well as the introduction of Cash Deposit Machines across the country.
Other transformation initiatives included the expansion of the agency banking platform, with over 655 Absa outlets commissioned.
