NAIROBI, Kenya, Apr 11 – The Banking sector continued to register impressive growth last year, despite the ailing economy compounded by high inflation and interest rates as well as a volatile exchange rate.
This was especially evident in the gross non-performing loans (NPL) that stood at 4.5 percent, according to the RSM Ashvir Banking Sector Performance in 2011 report.
RSM Ashvir Group Chief Executive Ashif Kassam said NPL has been on a decline over the last three years, although it was difficult to predict its future performance.
“This figure doesn’t seem realistic with the increased interest rates during the second half of the year and inflation eating into people’s net disposable income and the growth in advances during the year. One would have expected that the figure would have been higher,” he said.
The challenge, Kassam noted, is whether the same rate can be maintained this year or whether we are likely to see some bad debts come out in the wash. He however pointed out that increasing statutory provision on NPLs is one way to hedge against profit fluctuations.
“When restructuring a loan you have to make a special general provision on a certain percentage of the loan and that should be held for at least two years and if the loan performs you can claw that back,” he explained.
The liquidity of the banking sector and strong capital base would be able to avert any shocks, if bad debts were to in fact go up, Kassam said.
According to the report, core capital to customer deposits, core capital to total risk weighted assets and total risk weighted assets were 16.7 percent, 18.1 percent and 20.5 percent respectively.
Though 71 percent of the total investment in liquid and near liquid assets (worth Sh535 billion) goes into government and other securities, there has been a shift in investment strategy by banks from holding government securities to lending.
Interest rate spreads remain a key concern, now at 11.3 percent that was reflected in the good returns in capital for most banks that registered 34.6 percent for the industry last year.
Primarily micro-finance institutions had average spreads exceeding 15 percent including Jamii Bora (38.9 percent), K Rep Bank (20.8 percent), Imperial Bank (20.5 percent), Family Bank (16.5 percent) and Equity Bank (15.7 percent). While banks with spreads below 7.5 percent included Citi Bank (6.6 percent), Bank of Africa (6.5 percent), Bank of India (6.7 percent), Development Bank (4.6 percent), Oriental Bank (6.5 percent) and Middle East Bank (5.7 percent).
Large banks continued to dominate the sector, with 11 banks commanding 74 percent, 73 percent and 81 percent of the customer deposits, total assets and profitability respectively.
On the other end of the spectrum 17 banks controlled six percent of customer deposits and total assets and three percent of profitability. Kenya Commercial Bank ranked first out the top 25 banks in customer deposits, total assets and pre-tax profit, while Barclays Bank ranked first in return on capital and total assets.
Overall CitiBank outperformed its peers after being measured up against the 10 benchmark performance indicators some of which included customer deposits, total assets, pre-tax profit, return on capital and total assets and efficiency among others.