Banks navigate perfect storm to post Sh181bn in profits
This is an improvement from the Sh162.3 billion recorded during a similar period in 2023, underlining the sector’s ability to withstand economic pressure that has affected other industries.
Despite a tough economic landscape marked by floods, protests, and rising loan defaults, Kenya’s commercial banks marked a significant 11.58 per cent increase in pre-tax profit, reaching Sh181.1 billion for the first eight months of 2024.
The Central Bank of Kenya (CBK) has attributed the growth to the sector’s resilience, noting that March was particularly strong, with pre-tax profits hitting Sh27.3 billion.
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This is an improvement from the Sh162.3 billion recorded during a similar period in 2023, underlining the sector’s ability to withstand economic pressure that has affected other industries.
August, however, proved to be a slower month for the banking sector, with pre-tax profits falling to Sh17.6 billion, making it the only month since January to record earnings below Sh20 billion.
“The performance shows banks are on course to maintain a growth trajectory in profitability,” CBK Governor Kamau Thugge said during the post-monetary policy briefing.
The impressive earnings came amid broader economic challenges. Between March and June 2024, floods disrupted businesses across the country, while youth-led protests in July further strained economic activity. In addition, the economy has been grappling with tight liquidity and high borrowing costs.
Data from the Kenya National Bureau of Statistics (KNBS) shows that the finance and insurance sector expanded by seven per cent in the first quarter of the year, before slowing to 5.1 per cent in the second quarter.
Despite this slowdown, the CBK projects the sector will register full-year growth of six per cent. If realised, this would be the slowest growth rate since 2020, when the sector grew by 5.9 per cent at the height of the Covid-19 pandemic.
The overall economic outlook has also dimmed. The CBK has revised its 2024 GDP growth forecast downward to 5.1 per cent from the earlier projection of 5.4 per cent. The revision follows a deceleration in second-quarter economic growth to 4.6 per cent, compared to 5.6 per cent in the same period last year.
Lending activity in the banking sector has also contracted. CBK data shows that banks’ loan books stood at Sh4.045 trillion by the end of August, down by Sh154.4 billion from Sh4.199 trillion in December 2023. The drop has been attributed to both reduced lending and a decline in the value of dollar-denominated loans as the Kenyan shilling strengthened against the dollar.
Private sector credit growth also fell sharply to 1.3 per cent in August, the slowest pace recorded in over five years. At the same time, the non-performing loan (NPL) ratio climbed to 16.7 per cent—the highest in 18 years—reflecting increased financial distress among borrowers.
The high rate of loan defaults and declining demand for credit have emerged during a period of elevated interest rates. In February, the CBK raised its benchmark lending rate to a 12-year high of 13 per cent. Since then, the regulator has eased the rate to 12 per cent in an attempt to encourage borrowing and reinvigorate economic growth.
“The Monetary Policy Committee (MPC) noted the sharp deceleration in private sector credit and the slowdown in economic growth during the second quarter of 2024,” the CBK said.
“It concluded that there was scope for further easing of monetary policy to boost economic activity while ensuring exchange rate stability.”
The CBK's June credit survey revealed that 48 per cent of credit officers from 39 commercial banks expected non-performing loans to rise in the third quarter ending September. Meanwhile, 18 per cent expected the level of NPLs to remain unchanged, while 34 per cent anticipated a decline.
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