How banks made billions as other sectors struggled

Kenyan banks earned record profits last year in sharp contrast to firms in other sectors that posted profit slumps or losses due to high inflation. 

An analysis by the Nation shows the top nine banks listed at the Nairobi Securities Exchange (NSE) earned a record Sh176.42 billion in net profits in 2022, a 25.1 per cent growth from the Sh141 billion they earned in 2021.

The profits rally was driven by a sharp jump in earnings from interest on loans and government securities, and similarly rapid growth in income from transaction fees and foreign exchange trading.

On the other hand, companies from other sectors of the economy faced tougher times in 2022.

Kenya Airways, for instance, this week announced it had more than doubled its loss from Sh15.87 billion to Sh38.26 billion for the financial year ended December 2022. The national carrier was heavily affected by huge debt and skyrocketing fuel prices.

Profit warnings

Several firms listed at the NSE from the construction, hospitality, agriculture and other sectors, have also issued profit warnings indicating that their earnings for 2022 will be at least 25 per cent lower than in 2021. This includes Bamburi Cement, Crown Paints, Sameer Africa and Flame Tree.

State-owned KenGen, which is also listed, posted a 3.2 per cent profit drop for its half-year ended December 2022, which it attributed to higher operating costs.

Kenya Power also sunk back into losses for the six months to December last year, posting a net loss of Sh1.14 billion owing to a 15 per cent cut in power tariffs and a weak shilling that sharply increased its forex costs.

“This drop is attributable to increased foreign exchange losses and the implementation of the 15 per cent reduction of the end user electricity tariff as recommended by the government in January 2022,” said Kenya Power.

Safaricom, which is the region’s most profitable company, has also not been spared after recording a 10 per cent slump in its half-year period to September last year.

The company’s profits dropped to Sh33.5 billion largely driven by the impact of a cut in the mobile termination rate and higher costs associated with its entry into Ethiopia.

In contrast, Equity Group made a record Sh46.1 billion in net profits in 2022, up from Sh40.1 billion in 2021, extending its lead as Kenya’s most profitable bank. The bank’s earnings were driven by interest income that hit Sh119.6 billion, while earnings from trading forex hit Sh12.9 billion.

“The Group’s 2022 results reflect the resilience that the business has developed due to deliberate and intentional leadership and management decisions through the interest capping period and Covid-19 pandemic environment,” said Equity Group Chief Executive James Mwangi.

KCB, which is Kenya’s second most profitable lender, raked in Sh40.8 billion profit after tax, marking a significant growth from Sh34.2 billion. The bank’s earnings were propelled by interest income amounting to Sh117.7 billion while its earnings from trading forex grew to Sh11 billion.

Co-operative Bank similarly recorded a growth in its net earnings to Sh22 billion from Sh16.5 billion in 2021. The lender earned Sh61.7 billion from interest on loans and government securities and made a further Sh4.7 billion from forex.

Absa Bank Kenya made a record Sh40.8 billion from interest during the period and a further Sh6.6 billion from trading forex. This pushed its net earnings to Sh14.6 billion in 2022, up from Sh10.8 billion in the previous year.

Similarly, NCBA recorded a big jump in its interest income, which hit Sh52.4 billion while forex trading revenue jumped to Sh12.4 billion. The revenues propelled the bank to a Sh13.77 billion net profit, up from Sh10.2 billion in 2021.

Other tier-one banks Stanbic, DTB and Standard Chartered saw their interest income grow to Sh25.6 billion, Sh40 billion and Sh25.5 billion, respectively. They also made Sh8.5 billion, Sh4.3 billion and Sh5.9 billion from forex trading, respectively. 

This saw Stanbic grow its net profits to Sh9.05 billion from Sh7.2 billion, DTB net earnings hit Sh6.8 billion from Sh4.4 billion while StanChart’s profit grew to Sh12.1 billion up from Sh9 billion in 2021.

Dividends

The increase in earnings also saw banks announce record payments of dividends to shareholders.

The nine banks will pay a total of Sh63.01 billion in dividends, led by Equity which will pay its shareholders dividends amounting to Sh15.1 billion.

The banks had paid dividends amounting to Sh51.7 billion in the financial year 2021, which was nearly three times the Sh18.8 billion they paid in 2020.

StanChart will pay Sh8.31 billion in dividends, KCB shareholders will get Sh6.4 billion and Co-operative will pay shareholders Sh8.8 billion.

Meanwhile, Absa will pay Sh7.3 billion in dividends, NCBA will pay Sh7 billion, DTB shareholders will get Sh1.4 billion while Stanbic and I&M will pay Sh4.98 billion and Sh3.72 billion, respectively.

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