Kenyan Banking Sector Made 9.3% Growth In Profits In Q2

The banking sector recorded a 9.3 percent increase in Profit before Tax (PBT) to 62.6 billion shillings in Q2’2022, from 57.3 billion shillings in Q1’2022.

The increase in profitability was mainly attributable to a higher increase in quarterly income by 15.8 billion shillings and a lower increase in quarterly expenses by 10.6 billion shillings.

On a yearly basis, PBT increased by 24.0 percent, to 62.6 billion shillings, from 50.5 billion shillings recorded in Q2’2021.

The sector’s Return on Asset (ROA) remained unchanged at 3.0 percent from Q1’2022. Year on year, ROA increased by 0.3 percent to 3.0 percent in Q2’2022 from 2.7 percent in Q2’2021.

The Return On Equity (ROE) recorded a 1.7 percentage point increase to 26.8 percent in June 2022, from 25.1 percent in March 2022, and, a 4.1 percentage points increase from 22.7 percent recorded in Q2’2021,

Lending increased by 3.3 percent to 3.5 trillion shillings in Q2’2022, from 3.4 trillion in Q1’2022, attributable to an increase in credit granted for working capital purposes, and loans granted to individual borrowers.

On a yearly basis, lending was up by 12.3 percent to 3.5 trillion shillings, from 3.1 trillion shillings in Q2’2021,

Deposits recorded a 3.3 percent increase to 4.6 trillion shillings in June 2022, from 4.5 trillion shillings in March 2022, attributable to a 2.6 percent increase in local currency deposits which increased to 3.38 trillion shillings in June 2022.

Compared to last year, deposits increased by 8.6 percent to 4.6 trillion shillings in Q2’2022, from 4.2 trillion in Q2’2022.

Customers deposits remain the main source of funding for banks, accounting for 73.9 percent of the sector’s total liabilities and shareholder’s funds as of Q1’2022, 0.7 percent higher than the 73.2 percent recorded in Q1’2022 and 0.9 percent lower than the 74.8 percent recorded in Q2’2021,

Credit risk remained elevated in the sector since the gross NPLs to gross loans ratio increased to 14.7 percent in Q2’2022 from 14.0 percent in Q1’2022.

The gross Non-Performing Loans (NPLs) also increased by 8.6 percent to 514.4 billion shillings in Q2’2022 from 473.7 bn in Q1’2022.

The energy and water sector registered the highest increase in NPLs by 33.5 percent (5.4 billion shillings) as a result of a challenging operating environment.

In addition, the asset quality also deteriorated compared with last year as the gross NPL ratio increased by 0.7 percentage points to 14.7 percent in Q2’2022 from 14.0 percent in Q2’2021,

The sector’s NPL coverage ratio decreased to 43.3 percent in Q2’2022, from 49.6 percent in Q1’2022, despite the increase in Non-Performing Loans.

“We expect provisioning levels to increase during Q3 and Q4’2022 due to the increasing credit risk brought by the tough operating environment,” said Cytonn in their latest report.

The banking sector remained adequately capitalized, with the aggregate Core Capital to Total Risk-weighted Assets ratio decreasing marginally to 16.1 percent in Q2’2022 from 16.2 in Q1’2022, and 0.4 percent lower than the 16.5 percent recorded in Q2’2021.

The core capital to Total Risk-Weighted Assets ratio was 5.6 percentage points above the CBK’s minimum statutory ratio of 10.5 percent.

On the other hand, the Total Capital to Total Risk-Weighted Asset ratio, decreased slightly by 0.1 percentage points to 18.8 percent in Q2’2022, from 18.9 percent in Q1’2022, and, down by 0.1 percentage points from 18.9 percent recorded in Q2’2021.

The Q2’2021 Total Capital to Total Risk-Weighted Assets ratio was 4.3 percentage points above the CBK’s minimum statutory ratio of 14.5 percent.

The sector remained sufficiently liquid during the period under review, despite the liquidity ratio decreasing to 52.5 percent in Q2’2022 from 55.0 percent in Q1’2022. Year on year, the ratio decreased by 4.3 percentage points from 56.8 percent recorded in Q2’2021.

This was 32.5 percentage points above the minimum statutory level of 20.0 percent. The decrease in the banking sector’s liquidity is attributable to a 3.7 percent increase in short-term liabilities, as compared to a 1.1 percent decrease in total liquid assets between the periods under review.

Related Content: A Review Of Kenya’s Banking Sector As Elections Approach