Commercial banks have posted an 11.58 percent rise in pre-tax profits to Sh181.1 billion in the first eight months of the year, defying an environment of rising loan defaults and reduced appetite for borrowing.
Central Bank of Kenya (CBK) data shows that January to August earnings grew from Sh162.3 billion posted in the same period last year.
Data shared by CBK Governor Kamau Thugge during the post-monetary policy briefing showed that March was the best month for banks, with a pre-tax profit of Sh27.3 billion. August was a slower month with profits of Sh17.6 billion, becoming the only month since January with earnings below Sh20 billion.
The performance shows that banks are on track to maintain a growth trajectory in profitability, defying a tough year in which floods between March and June, anti-government demonstrations in July and generally tight liquidity have hit other sectors of the economy.
Kenya National Bureau of Statistics data showed that the finance and insurance sector grew by seven percent in the first quarter of the year before slowing to 5.1 percent in the second quarter.
CBK projects the sector’s full-year growth to be six percent, in what will mark the slowest growth since the 5.9 percent that was posted in 2020 as Covid-19 battered the economy.
CBK data shows that banks’ loan book closed August at Sh4.045 trillion, a decline of Sh154.4 billion from Sh4.199 trillion at the end of last year, reflecting reduced lending as well as the decline in the value of dollar-denominated loans as the shilling gained against the dollar.
Private sector credit growth decelerated to 1.3 percent in August—the slowest pace in over five years—while the non-performing loan (NPL) ratio surged to 16.7 percent, the highest in 18 years.
The high level of defaults and reduced appetite for borrowing has come in a regime of rising cost of credit, with the benchmark lending rate hitting a 12-year high of 13 percent in February this year.
CBK has started easing the pressure on borrowers with back-to-back cuts to take the rate to 12 percent in a bid to stimulate borrowing.
“The MPC noted the sharp deceleration in private sector credit and the slowdown in economic growth during the second quarter of 2024. It concluded that there was scope for further easing of monetary policy to boost economic activity while ensuring exchange rate stability,” CBK said.
In the June CBK credit survey, 48 percent of the credit officers polled from 39 banks indicated that NPLs were likely to rise in the third quarter ending September, while 18 percent expected them to remain unchanged. About 34 percent expected a fall.
