Commercial banks defied elevated loan defaults and reduced borrowing to post a 14.6 per cent rise in pre-tax profit to Sh203.8 billion for nine months ended September 2024.
The latest data from the Central Bank of Kenya (CBK) shows the earnings growth from Sh177.8 billion posted in a similar period last year.
The first quarter was the strongest, returning a pre-tax profit of Sh73.5 billion, followed by Sh66.1 billion in the second quarter and Sh64.2 billion in the third quarter.
The performance shows banks are on course 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.
The latest credit survey report for September shows the decrease in profitability in the third quarter compared with the second one was mainly attributed to a higher increase in expenses by Sh6.2 billion compared to a Sh4.3 billion increase in income.
Banks' profits have come on the back of lending slowing and the stock of loan defaults rising. Private sector credit growth decelerated to 0.4 per cent in September — the slowest pace in over five years — while the non-performing loan ratio closed at 16.5 per cent, the highest in nearly two decades.
The CBK data shows banks' loan book closed September at Sh4.064 trillion, a Sh135 billion drop from Sh4.199 trillion at the end of last year — a reflection of reduced lending as well as the decline in the value of dollar-denominated loans as the shilling gained against the dollar.
In the three months ended September, CBK notes that demand for credit remained unchanged in 10 economic sectors and only increased in the personal and household sectors.
CBK said while individuals and households stepped up demand for loans for expenditure in the approaching festive season, the rest of the sectors showed unchanged or reduced appetite due to a rise in interest rates.
The benchmark lending rate hit a 12-year high of 13 per cent in February this year and remained at this level up to August when CBK cut it to 12.75 per cent. A further cut came in October, taking the rate to 12 per cent.
Banks have signalled to the regulator that they will be tightening credit standards and aggressively going after defaulters in this last quarter of the year.
"For the quarter ending December 31, 2024, banks expect to intensify their credit recovery efforts in eight economic sectors and retain them in three sectors. The intensified recovery efforts are aimed at improving the overall quality of the asset portfolio," says the CBK in the credit survey.
Sixty-one per cent of banks told the regulator that they saw an increase in liquidity during the third quarter. However, just 29 per cent said they planned to deploy the additional liquidity to the private sector, while 44 per cent eyed government paper.
