Banks’ a*sets up by Sh500b amid turmoil
Banking sector assets in Kenya grew by Sh500 billion despite tough economic times and electioneering shocks experienced in 2022 giving shareholders a reason to smile.
According to the State of the Banking Industry Report (SBIR) report by the Kenya Bankers Association (KBA), total assets grew by 8.2 per cent to Sh6.5 trillion in 2022 from Sh6 trillion in 2021 – with the overall private sector credit sustaining a double-digit growth with moderation – partly reflecting the impact of Kenya’s monetary policy tightening stance.
Credit expanded by 12.5 per cent in the 12 months to December 2022 with the stock of credit growing to Sh3.4 billion as private sector activities got invigorated.
Resilient economy
KBA Chief Executive Officer Habil Olaka said despite shocks experienced in 2022, the economy remained resilient to expand by 4.8 per cent, which is above the sub-Saharan Africa average of 3.9 per cent.
“The industry registered impressive growth, particularly for the deposit-taking micro-finance banks, while their asset quality concerns posed challenges, there were notable operational efficiency gains that enabled profitability growth in the market segment,’’ Olaka said.
The survey indicates that growth in bank lending was achieved without any detrimental impact on asset quality as the non-performing loan ratio declined to 13.7 per cent in 2022 from 14.1 per cent in 2021, reflecting an improvement in the banking sector’s efforts to generate good quality loan books.
“As asset quality improved, the industry continued to increase its loan loss provisions to cover expected credit losses. Loan loss provisions rose by 16.2 per cent to Sh68.8 billion in 2022 compared to Sh59.2 billion in 2021,’’ the report indicates.
The banking sector’s liability profile is driven by domestic deposits with deposits accounting for 87.3 per cent of total liabilities in 2022, a slight decline in the proportion from 89.9 per cent in 2021.
The survey also indicates that the industry on average maintained adequate capital buffers above the minimum statutory regulatory requirements. In 2022, the ratio of total capital to risk-weighted assets lowered slightly to 19 per cent from 19.5 per cent in 2021 against a statutory regulatory minimum of 14.5 per cent.
Total operating income in 2022 sustained its growth trajectory, rising by 17.7 percent to Sh740.4 billion from Sh628.5 billion in 2021, while the operating costs also rose, driven by interest expenses and general administrative costs.
Borrowed funds
According to the report, total operating costs rose by 13.4 per cent to Sh571.9 billion in 2022 driven by a rise in interest expenses on borrowed funds, deposits, and placements which more-than doubled in the year, rising by 118.3 per cent and a 38.3 per cent increase in the general administrative costs.
Banks’ aggregate cost-to-income, a proxy of efficiency, improved with costs absorbing 56.7 per cent of the incomes in 2022 compared to 58.4 per cent in 2021. The average banking sector’s average funding costs rose marginally to 3.1 percent in 2022 from 2.9 per cent, a trend reflected across all bank categories, driven by tightening monetary conditions in the economy.
In terms of profitability, the total pre-tax profits rose by 23 per cent to Sh241.52 billion in 2022 from Sh196.44 billion in 2021. The assets of deposit-taking microfinance banks continued to moderate, having contracted by 4.8 percent to Sh70.4 billion in 2022 from Sh74 billion in 2021.
Similarly, the net loans and advances to customers further contracted by 1.9 per cent to Sh39.3 billion from Sh40.1 billion in 2021.
Meanwhile, the asset quality of deposit taking micro-finance banks continued to deteriorate to 14.5 per cent in 2022 from 13.7 per cent, as the coverage ratio also edges further downwards to 2.3 per cent in 2022, from 14.8 per cent as of 2021, according to the report.
The sector’s total liabilities continued to edge downwards but its structure remained stable with customer deposits – the deposits-to-liabilities ratio - remains dominant at 75.4 per cent of the total liabilities, while borrowing and other liabilities accounted for 15.1 per cent, and 9.5 per cent respectively.
Overall, the total income of the sector contracted by 1.6 per cent to Sh13.2 billion compared to a 2.3 per cent growth it registered at end of 2021 while total expenses edged upwards, albeit marginally from Sh12.9 billion in 2021 to Sh13.1 billion in 2022.
According to the report, the industry outlook remains clouded by several interconnected risks that include persistent inflationary pressures, effects of tighter monetary policy conditions on credit flows and by extension economic activity, the tax laws in the Finance Act 2023.
