Banks make profit despite low mortgage uptake

Despite the high cost of credit and high interest rates that have seen many customers shy away from taking loans, most major banks have declared double-digit percentage profit.

The Central Bank’s attempt to maintain the base lending interest rate at 8.5 per cent has been largely ineffective, with most banks maintaining rates well above that.

According to the Central Bank, an analysis of many banks’ unaudited results shows an average increase of 16.8 per cent in profit.

Meanwhile, a look at the financial statements of commercial banks that have a mortgage facility shows that they have defied the harsh economic environment, with most having posted more than 10 per cent growth in pre-tax profit last year.

Leading mortgage provider Housing Finance Group saw its profit rise from Sh743.33 million in 2012 to Sh995.19 million in 2013, representing a 34 per cent growth. The group also saw its customer deposits grow by Sh3.6 billion to Sh26.50 billion in 2013, up from Sh22.93 billion in 2012, while loans and advances to customers grew by Sh5 billion to Sh35.21 billion.

Late last year, the firm launched Ezesha, a product that provides financing of up to 105 per cent of the property value.

Housing Finance Group managing director Frank Ireri said the firm’s two subsidiaries, Kenya Building Society and Housing Finance Insurance Agency, contributed 18 per cent to the its profit.

Through the Kenya Building Society, the firm has ventured into construction, with several housing estates under way in Komarock and Dagoretti.

The Kenya Commercial Bank (KCB) posted a 17 per cent increase in net profit for 2013, helped by increased lending and lower provisions for bad loans. The bank’s after-tax profit increased to Sh14.3 billion in 2013, compared with the previous year’s Sh12.2 billion. KCB’s loan book grew to Sh227.7 billion, up from Sh211.6 billion, resulting in an 8 per cent increase in interest income to Sh33 billion.

“We are excited with this trend in our performance reflecting growth in all our business segments,” KCB group chief executive Joshua Oigara said last week.

KCB operates in the mortgage market through its S&L mortgages wing.

The bank’s bad loans declined to Sh996 million from Sh2.01 billion in 2012, a 53 per cent drop, while its expenses increased by Sh1.8 billion to Sh27.1 billion.

Standard Chartered bank posted a 16 per cent increase in pre-tax profit of Sh13.4 billion compared with the previous year’s Sh11.6 billion.

Meanwhile, Barclays Bank of Kenya was the only bank that reported a decline (14 per cent) in profit in 2013. The bank’s 2013 profit stood at Sh11.9 billion, compared with Sh13 billion in 2012.

But its customer deposits stood at Sh4.4 billion last year, up from Sh1.5 billion in 2012.

Barclays chief executive officer Jeremy Awori said the bank’s total income grew by 2 per cent to close at Sh27.9 billion, compared with Sh27.4 billion for 2012, while the loan book rose to Sh1.2 billion in 2013, compared with Sh140 million for 2012.

Awori attributed the bank’s profitability to growth in income and prudent cost management through investment in technology.

The Cooperative Bank Group, which has the country’s lowest mortgage interest rate of 15.45 per cent, reported an 18 per cent increase in profit-after-tax for 2013 of Sh9.1 billion from Sh7.7 billion in 2012.

According to the bank’s managing director, Gideon Muriuki, the net loans increased in 2013 to Sh137.1 billion, up from Sh119.1 billion in 2012, while total customer deposits increased to Sh180.9 billion, compared with Sh163.1 billion in 2012.

“Fees and commissions on loans and advances increased to Sh1.9 billion in 2013 compared with Sh1.5 billion in 2012, a 33 per cent growth,” he said.

National Bank of Kenya also saw its 2013 profit grow by 51 per cent due to a rise in interest income.

The bank’s managing director, Munir Mohammed, attributed the growth to better lending and the Central Bank’s setting a single-digit base lending rate.

The Central Bank’s annual supervision report for 2013 shows that the construction sector is now robust, with cement consumption, a key indicator of building and construction performance, increasing from 3,858,402 tonnes in July-June 2011/12 to 4,007,226 tonnes in July-June 2012/13.