Kenyan banks' profit dips 4.9% in rare decline for industry
Banks in Kenya experienced a 4.9% decrease in pre-tax profit for the nine months ending in September, according to the latest data from the Central Bank of Kenya (CBK). During this period, pre-tax profit dropped to Sh177.8 billion, down from Sh187 billion the previous year, marking an unusual occurrence for the industry, which has generally seen consistent profit growth.
This decline in profit coincides with a notable increase in loan defaults, reaching levels not seen in 16 years. The economic challenges faced by borrowers in Kenya contributed to this downturn, presenting a stark contrast to the same period the previous year when the banking sector recorded a 28.5% growth in gross earnings, rising from Sh145.5 billion in the nine months to September 2021.
Even the top two most profitable lenders in Kenya, Equity Group and KCB Group, experienced a dip in profits from their operations in Kenya during the review period. Both banks had to rely on their subsidiaries to support overall earnings as they navigated the challenging economic landscape.
The decline in profit for the banking sector in Kenya is a rare occurrence, as the industry has generally seen consistent profit growth. The only recent instances of profit decline were in 2017, influenced by the impact of the interest rate capping law, and in 2020 when the Covid-19 pandemic disrupted businesses. Gross non-performing loans (NPLs), representing loans on which interest and principal have not been paid for at least three months, reached Sh615.54 billion in September. This marks three consecutive months of increasing defaults. Various factors, including the elevated prices of goods and services, new statutory deductions like the housing levy, and increased interest rates aligning with a higher Central Bank Rate (CBR) — currently at 10.5%, the highest in nearly seven years — have collectively weakened borrowers' ability to service loans. The CBK credit survey at the end of September indicated that 45% of surveyed banks anticipated a rise in NPLs in the fourth quarter ending in December. About 34% expected a decrease, while 21% anticipated NPLs to remain constant. These indicators suggest ongoing challenges for borrowers and potential implications for the banking sector's asset quality.