Standard Chartered Kenya Net Profits Rises 28% In 6 Months

Standard Chartered Bank Kenya posted a 28% rise in Net Earnings to 6.91 Billion shillings at the end of the six months ended 30^th June 2023.

This is compared to a Net Profit of 5.51 Billion shillings over a similar period last year.

The bank posted a 27.7%y/y leap in 1H23 EPS to KES 18.29 with net income coming in at KES 6.9bn. The exemplary performance was attributable to a 38.3%y/y surge in net interest income (NII) to KES 13.9bn and a 26.8%y/y jump in non-interest revenue (NIR) to KES 7.0bn.

NII was lifted by a 34.4%y/y uptick in interest income from loans to KES 8.0bn on upward loan re-pricing as well as on loan book growth of 13.2%y/y to KES 145.4bn. In addition, income from interbank lending surged 241.4%y/y as interbank rates climbed to highs of 10.1% in June from 6.4% in early January.

Contrary to most of its peers, interest expenses rose very slightly, inching up 0.9%y/y, as the bank shunned expensive deposits (customer deposits declined 6.4%q/q) given the ample liquidity that the bank holds (62.84%) in addition to paying down dollar debt from the group – down 58.8%y/y to KES 5.9bn.

The cost of deposits dropped 15bps to 0.8%. Yields on loans and advances rose 188bps y/y to KES 11.25% on re-pricing of loans following CBR hikes.

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Bank loan repricing usually lags CBK’s rate hikes hence recent re-pricing may have been about last year’s hikes, but StanChart has raised lending rates 1.66 percentage points within half as CBK raised the CBR by 1.75 percentage points in a similar period.

Government securities holdings by the bank dropped 31.3%y/y to KES 71.4bn, likely due to higher maturities than re-investments. This is slightly surprising given the attractive yields on offer with the recent issuances by the government.

Meanwhile, NIR was supported mainly by a 96.4%y/y climb in FX income to KES 4.5bn. Despite this, NIR contribution to total income dropped to 33.7% from 35.6% in 1H22 on higher income from lending. Operating expenses (OPEX) rose 16.8% to KES 9.2bn on higher staff and rental costs.

The firm is on track to maintain FY22 dividend payout, which currently offers a dividend yield of about 13.8%. We expect an interim dividend to be announced in 3Q23, likely similar to last year’s at KES 6.00.

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Key Positives

1. Net interest margins (NIMs) rose 172bps to 8.2% – the highest since the rate cap (2016) on loan re-pricing and declining interest expenses.
2. Non-performing loan ratio improved 1.0 percentage points to 14.4% from 15.4% in 1H22 – slightly below industry NPLs at 14.5%. As highlighted in our earlier reports, the loan book performance for the bank looks healthy considering there were no provisions from the corporate book in FY22.
3. Cost to income (CTI) improved from 50.6% in 1H22 to 44.1% in 1H23. 

Key Negatives

1. Cost of risk rose a significant 2.7 percentage points y/y to 2.9%, attributable to an 18-fold spike in loan loss provisions – signaling the impact of rising macro risks/re-pricings on the book. However, we like the proactive nature of the provisions.
2. Write-offs seemed to have increased in half as other income closed in a negative position of KES 261.0m.

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