The financial sector in Kenya has seen the most consistent growth over the last four years. In 2013, the sector grew by 7.2 per cent compared to 6.5 per cent in the previous year.
In 2014, Kenya Commercial Bank (KCB), Equity Bank, Standard Chartered Bank (Stanchart), Barclays Bank of Kenya (BBK) and Co-operative Bank (Co-op) returned the highest Profit Before Tax (PBT).
KCB pretax profit for 2014 rose 18 percent to Sh23.79 billion helped by a rise in interest income while Equity Bank reported a pretax profit of Sh22.4 billion, Stanchart made a 7.5 percent rise in pre-tax profit for 2014 to Sh14.35 billion as net interest income climbed.
BBK pretax profit rose by 10 percent in 2014 to Sh12.3 billion while Co-op Bank made Sh10.92 billion pretax profit in the same period under review.
From a growth perspective, NIC Bank, KCB, Diamond Trust Bank (DTB), Co-op Bank and Equity Bank delivered the highest growth rates in terms of PBT.
“The growth in earnings was mainly driven by increased net interest revenues across the listed banks with DTB having the highest net interest income growth of 16.2 percent year on year mainly due to increased interest earning assets. Barclay’s Bank recorded the lowest growth of 4 percent year on year owing to increased interest expenses,” said Standard Investment Bank analyst Faith Waitherero.
Waitherero says loan growth across the sector was impressive with Co-op Bank leading the pack at 30.9 percent , Equity Bank returned the highest deposit growth at 26.1 percent.
On both loan growth and deposit growth, StanChart was the laggard recording a 5.3 percent and 0.4 percent decline in loan and deposit growth respectively.
“Overall, the industry has been facing pressure with regards to cost of funds, leading to shrinking net interest margins. As a result, lenders have been pursuing non-interest revenue streams with mobile banking, internet banking and agency banking being the key focus for most banks going forward,” Waitherero added.
In the period under review, Equity Bank delivered the highest growth in the non-interest revenue space coming in 20.2 percent higher.
Equity so far has the largest agency network and has been leveraging on the reach it to increase accessibility and shore up deposits.
BBK’s non-interest revenue retreated 4.2 percent with fees and commission income and forex income declining. The lender however retained its position as the market leader in the credit card segment.
On the costs front, Equity Bank recorded the highest growth of 21.9 percent mainly due to a one-off cost related to their data centre. BBK on the other hand saw operating expenses decline 1.3 percent as the lender managed to subdue staff costs growth. This was on the back of a restructuring programme undertaken by the lender in 2013.
“Going forward we anticipate lenders to shift focus to non-interest revenue streams as competition exerts pressure on costs of deposits and lending rates lower. We anticipate banks to improve offerings on their alternative channels going forward to drive up revenue,” Waitherero said.
She says mobile banking has particularly proven to be a key growth area in the sector mainly due to ease of access as well as higher margins on the micro-lending space.
“Furthermore, lenders have been actively pursuing cost containment measures with Co-operative Bank currently undergoing a transformation programme to improve its efficiency in order to increase profitability,” she said.
Earlier, Afrika Investment Bank (AIB) Capital Investment Analyst Parshv Shah had indicated that Bank stocks are the ones to watch out for in 2015 owing to lower inflation expected in 2015 due to falling global oil prices.
“Lower inflation will in turn reduce Treasury Bill rates resulting to lower Kenya Bankers Reference Rate (KBRR) that will then ease the cost of debt for private companies and encourage demand for credit for expansion purposes, “he said.
He said banks highly reliant on interest income are expected to take a hit as a drop in interest rates will trigger lower net interest margins, lower growth and lower return on equity.