Banks asset base surge to Sh6.8 trillion in 2023, Q1

Kenya’s banking sector’s total asset base hit Sh6.8 trillion in the first quarter ending March 31, 2023, on recovery, even as this shows the sector’s importance to the economy.

With an estimated Gross Domestic Product (GDP) of $110.3 billion (Sh15 trillion as of 2021), this means that commercial bank's are worth close to half of the country’s economy.

The sector, which had been hit hard by Non-Performing Loans (NPLs) during and after the Covid-19 pandemic economic shocks, has been on a recovery streak.

According to first quarter reports by the Central Bank of Kenya (CBK), profit before taxes increased by 14 per cent Sh128.2 billion up to March 2023, while gross loans grew to Sh3.85 trillion.

During that period, customer deposits among lenders also grew by 8 per cent to Sh4.5 trillion, with shareholder funds increasing 6 per cent to Sh964 billion.

In the period under review, six listed bankers, including Equity Group, Cooperative Bank, NCBA, Absa, Stanbic, Stanchart I&M and DTB reported a combined net profit of Sh45.5 billion. Their combined assets stood at Sh5.3 trillion while customer deposits stood at Sh4.8 trillion

Cooperatives bancassurance unit made pretax profits of Sh336 million and KCB bancassurance returned Sh284 million while Equity Group had a total of Sh320 million in its pre-tax profits from its two insurance businesses.

KCB Group was the largest bank by asset base of Sh1.6 trillion as well as shareholder funds. Equity Group led in absolute profits after tax recording a growth of 8 per cent to Sh12.8 billion at the group level.

Growth areas

Speaking in a virtual Twitter Space meeting organised by the Central Depository and Settlement Corporation on Navigating the Future: Quarter 1 banking sector analysis, experts attributed the growth to diversification into new growth areas including the forex market, digital best banking solutions, non-funded income sources and private wealth management solutions held the key to bumper financial harvest at the end of the financial year.

Ronny Chokaa, a research analyst at Investment Bank Genghis Capital said by shifting to digital best banking solutions the lenders are minimising operating costs relative to interest and non-interest income.

He said optimal growth in non-funded income sources including fees and commissions charged on loans and advances given the rising appetite for private wealth management solutions and custom-made financing solutions, was a favourable tailwind to growth.

“If those propositions remain as they are to the end of the financial year, with a widening job base, we should expect record-breaking profitability levels for the tier-1 banks,” said Wesley Manambo, a research analyst with Investment bankers Genghis Capital.

Government securities

“Globally speaking, this is the time the banks are making money from loans, holding government securities because they are lending at higher rates and also getting securities at impressive coupons also buying at discounted levels when you look at the yield curve entry positions they are having in the markets right now,” Manambo said.

He said most of the banks have also been shying away from holding more government securities as they push more money towards loans.

“Yes we know that lending to their clients is their core business but they are advancing more and more into loans and reducing their holdings in government securities and I want to believe this is due to mark-to-market losses,” he said.

Victoria Mututu, a research analyst with NCBA Investment bank said most banks increased their loan loss provision, a factor that affected their profitability and their bottom lines with a number registering single digit figures.

In the period under review, there was a cumulative 30 per cent marked rise in interest rates expense for Equity and KCB Group, as well as Cooperative bank as they held expensive deposits that led to increased interest expenses they had to pay out to use and spur growth in their loans and advances assets books.

“When you look at their loan book, these banks recorded double-digit figures on the levels of 15 per cent and above on loans and advances. This tells you that the deposits were used to spur growth in the loan book and lead to the increase in the loan and advances offered to their customers,” Mututu said.

Though the lenders witnessed tremendous profitability, Choka said they also faced headwinds, including rising interest rates that weighed heavily on their profit and loss statements.