- Final 12 months, the economic system contracted by 5.7 per cent and 1.1 per cent within the second and third quarters respectively, with enterprise exercise slowing down, 1000’s shedding their jobs and colleges remaining closed as a result of pandemic.
- This damage the standard of banking sector belongings, with non-performing loans leaping to 14.1 per cent by the tip of December 2020 from 12 per cent in 2019, resulting in increased provisioning that ate into profitability.
- The lenders largely recorded falls in income within the second and fourth quarters of the 12 months, which the CBK attributed to revenue rising at a slower tempo in comparison with bills.
Kenyan banks took a Sh46 billion hit on their income final 12 months, damage by a pointy rise in dangerous loans and prices in an economic system that was battered by Covid-19 pandemic-related woes.
The pre-tax revenue for the 39 lenders fell by a 3rd to an eight-year low of Sh112.8 billion in 2020, the Central Financial institution of Kenya’s credit score survey report for the fourth quarter of 2020 reveals. This marked a major stoop from the document Sh159.1 billion revenue the lenders posted in 2019.
The final time the sector’s income had been this low was in 2012 (Sh107.9 billion), with the previous decade largely characterised by speedy progress in profitability earlier than the Covid-19-led pace bump final 12 months.
On account of their function of monetary intermediation, banks’ fortunes are usually carefully linked to the nation’s general financial efficiency.
Final 12 months, the economic system contracted by 5.7 per cent and 1.1 per cent within the second and third quarters respectively, with enterprise exercise slowing down, 1000’s shedding their jobs and colleges remaining closed as a result of pandemic.
This damage the standard of banking sector belongings, with non-performing loans leaping to 14.1 per cent by the tip of December 2020 from 12 per cent in 2019, resulting in increased provisioning that ate into profitability.
The lenders largely recorded falls in income within the second and fourth quarters of the 12 months, which the CBK attributed to revenue rising at a slower tempo in comparison with bills.
“This was because of a better improve in bills (10.42 per cent) as in comparison with improve in revenue (4.44 per cent). Return on Belongings decreased to 1.64 per cent in December 2020 from 1.76 per cent in September 2020,” mentioned the CBK in its credit score survey report for the final quarter of the 12 months.
Banks additionally noticed a lack of non-funded revenue because of measures carried out by the federal government to cushion clients from the destructive results of the pandemic.
Key amongst them was the removing of fees on money transfers between financial institution accounts and cellular cash wallets in March, which stays in drive so far.
This was meant to discourage use of laborious money in transactions, with a view to minimise the probabilities of spreading the coronavirus by way of contaminated banknotes.
The lowered demand for loans additionally lowered the quantity of processing charges banks earned, whereas the lowered visits to ATMs additionally ate into non-funded revenue.
Consequently, within the 9 months to September, tier one banks noticed their non-interest revenue rise by only one.5 per cent in comparison with a 16.2 per cent progress within the corresponding interval in 2019.
The largest concern, nonetheless, remained the elevated credit score threat, with absolutely the worth of defaulted loans rising to Sh423 billion or 14.1 per cent of the overall Sh3 trillion mortgage ebook in December, in comparison with Sh333.24 billion that was in default in December 2019.
The inventory of non-performing loans (NPLs) rose at the same time as banks allowed clients to increase compensation intervals on loans price Sh1.63 trillion by finish of December, an equal of 54.2 per cent of whole mortgage ebook.
Their revenue has additionally been damage by the cautious method to lending as a result of elevated threat of defaults.
Credit score progress
By the tip of December, the banking sector liquidity had climbed to 54.55 per cent, in comparison with 49.7 per cent in December 2019, whereas 12-month personal sector credit score progress stood at 8.4 per cent, in comparison with 7.1 per cent a 12 months earlier.
Financial institution homeowners are additionally feeling the ache after the lenders issued a raft of revenue warnings for the 2020 monetary 12 months, indicating that they count on internet earnings to fall by greater than 25 per cent.
Six of the 11 listed banks have already notified shareholders they are going to be reporting considerably decrease income and are subsequently unlikely to be paying dividends for the 12 months.
In 2019, tier one banks paid out a complete of Sh33 billion in dividends, which at the moment are unlikely to be replicated for 2020.
The banks will even want approval from the CBK to distribute any of their 2020 income in type of dividends below measures meant to make sure they’re adequately capitalised throughout the Covid interval.