Kenya’s biggest bank by assets KCB Group #ticker:KCB reported a 19.6 percent jump in net profit for the nine months ended September, buoyed by cost management and a drop in provision for bad debts.
KCB said Wednesday that its net earnings grew to Sh18 billion from Sh15 billion a year earlier, widening its profits gap with rival Equity Group, whose net profit rose 7.6 percent to Sh15.7 billion in the same period.
“The improved performance was primarily driven by robust cost management and growth in net interest income,” the Nairobi Securities Exchange-listed firm said in a statement, adding that the lower operating expense came from reduced spending on staff.
KCB slashed its operating expenses by Sh2.1 billion to Sh28.6 billion even as its provision for bad debt fell 42.6 percent to Sh1.7 billion.
The bank said its investment in technology-based delivery channels such as mobile and agency banking has allowed it to grow with minimal increase in costs.
Non-branch transactions, by volume, now stand at 87 percent of total services. “Our focus on technology-driven growth continues to deliver both client satisfaction and efficiencies while keeping costs under control and diversifying the income streams,” chief executive Joshua Oigara said.
KCB’s provision for non-performing loans declined even as gross defaults remained flat at Sh34.7 billion.
The bank said its loan book has improved in two consecutive quarters and its financial statements showed it has significantly benefited from increased purchase of government securities.
KCB’s loan book grew 3.7 percent to Sh435.2 billion while investment in government debt rose 10.9 percent to Sh100.6 billion, raising its total interest income 5.1 percent to Sh49.1 billion.
Customer deposits rose 6.1 percent to Sh526.8 billion but interest expenses rose at a faster pace of 15.9 percent to Sh12.8 billion, reflecting an expansion of interest-bearing accounts.
Mr Oigara offered a positive guidance for the full year ending December, saying the bank is “on track to deliver on its 2018 targets.”
“This fourth quarter of the year has begun with vibrancy in most of the economies we operate in, which will form a good bedrock to a strong 2018 close and also tee up a good start to 2019.”
KCB and Equity’s performance have become the clearest signals that the big banks are well positioned to overcome the narrower lending margins that came with the capping of lending rates since September 2016.
Losses, reduced profitability
Most small and medium-sized banks, whose business models were built on interest rates of 15 per cent and above, have reported a mix of losses and reduced profitability.
Big banks, which hold most of the industry’s deposits, are also set to benefit from the recent removal of the minimum interest payable on interest-bearing accounts.
Such accounts previously earned at least 70 percent of the Central Bank Rate (CBR), placing their minimum returns at seven percent for most of the period when the law was in force.