Kenya’s Banking Sector Assets Grew By 2.9% To Kshs 5.4 Trillion

Kenya’s banking sector’s total assets grew by 2.9 percent to 5.4 trillion shillings from 5.3 trillion shillings recorded in Q3’2020.

The sector’s asset growth was mainly driven by the 45.3 percent growth in placements coupled with the 1.9 percent growth in loans and advances to customers.

The sector’s loan book recorded a muted growth of 1.9 percent during the quarter to 3.0 trillion shillings, from 2.9 trillion shillings recorded in Q3’2020.

According to a report released by Cytonn Investments, most banks shied away from lending to customers on the back of the elevated credit risk amid the pandemic.

Notably, sectors such as Energy and Water, Personal/household, and Manufacturing recorded the highest increase in the gross loans and advances of 6.7, 3.1, and 3.0 percent respectively during the quarter.

The sector’s customer deposits increased by 3.0 percent to 4.0 trillion shillings in Q4’2020 from 3.9 trillion shillings in Q3’2020.

The increase in deposits was mainly attributable to a 13.8 percent increase in Foreign currency deposits to 907.0 billion shillings in Q4’2020 from 797.1 billion shillings recorded in Q3’2020.

The increase led to a marginal rise in the deposits as a percentage of liabilities and shareholder funds in Q4’2020 to 74.2 percent from 74.1 percent in Q3’2020.

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The sector’s earnings growth remained depressed during the period, as the banks increased their provisioning levels by 48.0 percent to cover for potential bad loans.

Given the increased provisioning levels, the sector recorded a 19.2 percent decline in Profit Before Tax (PBT) to 23.6 billion shillings, from 29.2 billion shillings recorded in Q3’2020.

The sector’s Return on Assets (ROA) declined marginally by 0.2 percentage points to 1.6 percent, from the 1.8 percent recorded in Q3’2020, with the Return on Equity (ROE) also declining by 1.3 percentage points to 13.8 percent, from 15.1 percent in Q3’2020,

The gross non-performing loans (NPLs) increased by 5.6 percent to 424.1 billion shillings, from 401.6 billion shillings at the end of Q3’2020.

The uptick in the NPLs led to the deterioration of the sector’s asset quality, with the NPL ratio rising by 0.5 percent points to 14.1 percent in Q4’2020 from 13.6 percent in Q3’2020.

The major increases in NPLs were recorded in the Transport and Communication, Agriculture and financial services sectors which increased by 38.5, 16.7, and 9.6 percent respectively.

The NPL coverage ratio increased to 51.9 percent, from 46.0 percent in Q3’2020 as banks covered for potential losses in their loan book.

The sector’s overall liquidity ratio remained above the minimum statutory level of 20.0 percent and increased to 54.6 percent in Q4’2020, from 53.1 percent in Q3’2020. The increase was driven by a higher 3.5 percent increase in total liquid assets as compared to a 1.9 percent increase in total short-term liabilities during the quarter.

The sector also remained well capitalized with the Core capital increasing by 4.1 percent to 692.5 billion shillings in Q4’2020, from 665.1 billion shillings Q3’2020.

Total capital also increased by 6.4 percent to 793.2 billion shillings in Q4 2020, from 745.8 billion shillings in Q3’2020. The increases in capital levels are mainly attributable to increased retained earnings from the profits made in 2020.

“We believe that the banking sector will continue to remain resilient and stable amid the pandemic. However, risks abound on the sector’s earnings growth in the medium term, following the recent containment measures adopted in order to contain the spread of the virus and the possibilities of elevated credit risks as a large portion of the sector’s loan book are categorized in Stage 3,” said experts from Cytonn Investments.