Top five lenders record Sh59.9b net profit in Q3
Before the law capping interest rates was removed, the five leading banks recorded a net profit of Sh59.96 billion for the nine-month period ending September 30, 2019 leveraging on non-funded incomes (NFI).
Overall, KCB Group led, reporting a net profit of Sh19.2 billion, followed by Equity which realised Sh17.46 billion, Co-operative Bank reported Sh10.9 billion while both Barclays Bank and Standard Chartered posted Sh6.2 billion each.
NFI which is income accrued primarily from deposits and transaction fees, insufficient funds fees, annual fees, monthly account service charges, inactivity fees, cheques and deposit slip fees informed the profits.
The third quarter reports indicate that Cooperative Bank led the pack in NFI revenue growth recording a 33 per cent surge, followed by KCB Group which posted a 16.9 per cent rise, while Equity Group emerged third with a 13.7 per cent hike.
Digital propositions
Standard Chartered Bank recorded a slight decline of 1.12 per cent in the NFI, while Barclays Bank showed a four per cent rise driven mainly by the growth of in risk fees, fixed income trading and risk-managed products.
KCB Group chief executive Joshua Oigara said in Q3 financials, total income increased by 10 per cent from Sh54.2 billion to Sh59.7 billion, with NFI increasing by 16.9 per cent attributable to the digital proposition, largely KCB M-Pesa.
Equity Group beat the four banks in almost all metrics except for NFI, where it performed averagely. Caleb Mugendi, assistant manager in charge of investments at Cytonn said the NFI growth in Equity Group was mainly driven by the 21.7 per cent increase in other fees to Sh11.4 billion and a 19.9 per cent rise in forex trading income to Sh2.8 billion.
“Fees and commissions on loans, on the other hand increased marginally by 0.4 per cent points to Sh4.29 billion from Sh4.28 billion in Q3 2018,” he said.
He said the revenue mix shifted to 59:41 from 60:40 funded to NFI, owing to the faster growth in NFI as compared to growth in non-interest income.
Speaking during an investors briefing last week, Equity Group Holding CEO James Mwangi, said NFI for the period rose to Sh22.54 billion from Sh19.8 billion last year.
“Interest rate cap fully transformed us to rely on other sources of income but because it has been removed, interest will only add to other sources,” he said.
Mwangi said if there is any lesson the group has learnt from the interest rate cap, it’s that they must focus more on non-funded income in order to grow their business and give returns to their investors.
Monetary policies
He said Equity will not raise its interest rates – at least for the next three months – until things settle and the economic and monetary policies are clearly defined.
Analysts argue that what was once described as a “bad thing” in the industry appears to have taught commercial banks a lesson which they will forever not forgot.
“Commercial banks have started reaping from the interest rate cap, three years after they operationalised it and resorted to diversification to generate additional income – a move that was opposed by nearly all the financial institutions,” said Sterling Capital director John Kirimi.
Kirimi said more avenues need to be created to enable small-medium enterprises to access cheap funds.
