Bank earnings hit record Sh178bn in eleven months

Banks have earned a cumulative Sh178.8 billion in the 11 months to November, setting them up for record profits for the year as they cut provisioning for bad loans as the economy continues to recover its footing.

The earnings represent a 66 percent increase over the Sh107.7 billion they earned in the 11 months to November 2020, the latest sector data from the Central Bank of Kenya (CBK) shows.

Lenders had already surpassed the previous full-year record for gross profits—the Sh159.9 billion they made in 2019— in October, meaning they can now ease back on the capital conservation drive that saw most of them suspend or cut dividends in the wake of the Covid-19 pandemic in early 2020.

Analysts said that the lenders have been helped in their recovery by the enhanced uptake of digital channels due to the pandemic, which combined with the end of the loan repayment moratorium boosted both interest and non-funded income.

“Banks had opted to err on the side of caution in 2020 since Covid-19 was and still is an evolving situation that the industry had never experienced before. As the economy reopened and business activities resumed, various banks released their loan loss provisions leading to the extraordinary growth in revenues witnessed in the sector,” said Genghis Capital analyst Melodie Ndanu.

“Additionally, since banks had lower earnings in 2020, the base effect may have been a factor that highlighted the skyrocketing profits as they recovered in 2021.”

The CBK estimates the economy grew by eight percent last year, strongly reversing the contraction of 0.3 percent in 2020, in turn helping banks improve the quality of their loan books and interest earnings.

The sector’s ratio of gross non-performing loans (NPLs) to gross loans stood at 13.1 percent in December 2021, coming down from a peak of 14.6 percent in March 2021.

Earnings have also been driven significantly by higher lending to the government, whose appetite for funds remains high due to a wide budget deficit.

Lending to the private sector has also grown, increasing to 8.6 percent in December from 7.8 percent in October.