A Review Of Kenya’s Banking Sector As Elections Approach

The banking sector’s total assets increased by 1.6 percent to 6.1 trillion shillings in March 2022, from 6.0 trillion shillings in December 2021.

The increase was mainly attributable to a 4.1 percent increase in loans and advances to 3.4 trillion shillings as well as a 2.6 percent increase in government securities to 2.0 trillion shillings.

On a yearly basis, total assets increased by 10.4 percent to 6.1 trillion shillings, from 5.5 trillion shillings in Q1’2021. Notably, loans and advances accounted for 50.2 percent of total assets in Q1’2022.

The banking sector recorded a 16.2 percent increase in Profit before Tax (PBT) to 57.3 billion shillings in Q1’2022, from 49.3 billion shillings in Q4’2021, with the increase in profitability mainly attributable to a faster decrease in quarterly expenses by 9.8 percent.

The sector’s Return on Assets (ROA) recorded a 0.4 percentage point increase to come in at 3.0 percent in Q1’2022, from 2.6 percent recorded in Q4’2021.

Year on year, ROA increased by 0.4 to 3.0 percent in Q1’2022 from 2.6 percent in Q1’2021. Additionally, Return On Equity (ROE) recorded a 3.5 percentage point increase to 25.1 percent in March 2022, from 21.6 percent in December 2021, and, a 3.1 percentage points increase from 22.0 percent recorded in Q1’2021.

Lending increased by 4.1 percent to 3.4 trillion shillings in Q1’2022, from 3.2 trillion shillings in Q4’2021, attributable to an increase in credit granted for working capital purposes, and loans granted to individual borrowers.

Deposits recorded a 0.6 percent increase to 4.5 trillion shillings in March 2022, from 4.4 trillion shillings in December 2021, attributable to a 0.8 percent increase in local currency deposits which increased to 3.38 trillion shillings in March 2022, from 3.35 trillion shillings in December 2021.

Compared to last year, deposits increased by 8.1 percent to 4.7 trillion shillings in Q1’2022, from 4.1 trillion shillings in Q1’2021. Key to note, customer deposits remain the main source of funding for banks, accounting for 73.2 percent of the sector’s total liabilities.

Credit risk remained elevated in the sector since the gross NPLs to gross loans ratio increased to 14.0 percent in Q1’2022 from 13.1 percent in Q4’2021. The gross Non-Performing Loans (NPLs) also increased by 11.0% in Q1’2022 to Kshs 473.7 bn, from 426.8 bn in Q4’2021.

Building and construction sector registered the highest increase in NPLs by 38.0 percent (11.1 billion shillings) as a result of delayed payments in Q1’2022. The asset quality, however, improved compared with last year as the gross NPL ratio decreased by 0.6 percentage points to 14.0 percent in Q1’2022, from 14.6 percent in Q1’2021.

The sector’s NPL coverage ratio decreased to 49.6 percent in Q1’2022, from 54.1 percent in Q4’2021, despite the increase in Non-Performing Loans.

The banking sector remained adequately capitalized, with the aggregate Core Capital to Total Risk-Weighted Assets ratio decreasing marginally to 16.2 percent in Q2’2022 from 16.7 in Q4’2021, and 0.3 percent lower than the 16.5 percent recorded in Q1’2021.

The Core Capital to Total Risk-Weighted Assets ratio was 5.7 percentage points above the CBK’s minimum statutory ratio of 10.5 percent.

Total Capital to Total Risk-Weighted Assets ratio, decreased slightly by 0.7 percentage points to 18.9 percent in Q1’2022, from 19.6 percent in Q4’2021, and, up 0.1 percentage points from 18.8 percent recorded in Q1’2021.

The sector remained sufficiently liquid during the period under review, despite the liquidity ratio decreasing to 55.0 percent in Q1’2022, from 56.2 percent in Q4’2021.

Year on year, the ratio increased by 1.3 percent points from 56.3 percent recorded in Q1’2021. This was 35.0 percentage points above the minimum statutory level of 20.0 percent. The decrease in the banking sector’s liquidity is attributable to a 1.1 percent increase in short-term liabilities, as compared to a 1.1 percent decrease in to