Kenyan banks have achieved remarkable profitability in the first half of 2024 despite a challenging economic environment. The sector faced significant hurdles, including a surge in the cost of funds, with interest expenses increasing to a weighted average of 64.7% from 40.2% in the same period last year.
Experts attribute this rise to higher interest rates, which banks have strategically passed on to borrowers. Ronny Chokaa, a Senior Research Analyst at AIB-AXYS Africa, explained that banks have maintained their net interest margins (NIMs) by adjusting loan interest rates. He also highlighted that the profitability observed was due to strategic changes such as risk-based credit pricing and improved yields on government securities.
“Banks have soared to unprecedented profitability levels over the first half of 2024 on account of favourable industry shifts, including risk-based credit pricing, rising yields on government securities, deepening smartphone penetration and increased financial literacy levels that have accelerated mobile banking adoption while reducing operating costs for commercial banks,” Chokaa said.
In the first half of 2024, KCB Group led the sector with a significant 40.8% increase in net interest income, reaching Sh31.1 billion. This growth was driven by a 46% rise in interest income from loans and advances, boosting KCB’s net interest margin (NIM) to 7.4%, reflecting effective management of its lending portfolio.
Equity Group Holdings also reported strong results, with net profit rising by 25% to Sh16 billion, primarily due to substantial net interest income that enhanced the group’s NIM.
Co-operative Bank of Kenya posted a net profit of Sh13 billion, up from Sh12.1 billion the previous year, supported by increased income and customer deposits. The bank’s profit before tax grew by 10.7% to Sh18.2 billion, compared to Sh16.4 billion in the same period of 2023.
Standard Chartered Bank Kenya experienced a 20% increase in net interest income, improving its NIM to 8.2% from 7.9% last year. Similarly, I&M Bank saw a 15% rise in net interest income while maintaining a stable NIM of 7.5%.
NCBA Group recorded a 12% increase in net interest income, with its NIM slightly rising to 7.8% due to higher loan volumes and effective interest rate management.
These results demonstrate strong performance across the banking sector despite rising costs. While many banks are considering dividend payments to shareholders, the increased borrowing costs are placing strain on households and businesses, raising concerns about potential defaults and the overall health of the economy.
The government’s rising yields on Treasury bills, which average 10.5% for 91-day bills and reach up to 14% for 10-year bonds, have further increased the cost of borrowing for consumers.
Financial experts observe that many banks have adopted risk-based lending practices, adjusting interest rates according to borrowers’ creditworthiness. This strategy not only improves the quality of loan portfolios but also allows banks to manage credit more effectively, maintaining profitability despite escalating funding costs.
Ronny Chokaa noted that by accurately evaluating borrowers’ risk profiles, banks are able to charge higher rates for riskier loans while prioritizing high-quality borrowers, thus minimizing defaults and enhancing overall loan health.
