Kenyan banks shun away from lending to the private sector
NAIROBI, Kenya, Dec 17 – Banks have continued to shun away from lending to the private sector and leaning to the government as sustained effects of the rate cap continue to bite, according to the Cytonn Investments Banks third quarter 2018 review.
The report indicates that average loan growth in Kenya’s listed banks was anemic in the third quarter of 2018 coming in at 4.2 percent, which was lower than 6.1 percent recorded in the third quarter of 2017 indicating a slower credit extension in the economy.
According to the report, government securities on the other hand recorded a growth of 17.8 percent year on year, which was faster compared to the loans, and faster than 10.3 percent recorded in the third quarter of 2017.
“This indicates that banks’ continued preference towards investing in government securities, which offer better risk-adjusted returns,” the report indicates.
Interest income increased by 6.1 percent, compared to a decline of 5.8 percent recorded in the same period last year, as banks adapted to the interest rate cap regime, with increased allocations in government securities.
The Net Interest Income grew by 3.8 percent compared to a decline of 7.3 percent in the third quarter of 2017.
According to the report, listed banks recorded a 16.2 percent average increase in core Earnings per Share (EPS), compared to a decline of 9.3 percent same period 2017.
“NIC Group and HF Group were the only banks that recorded declines in core EPS, with NIC recording a decline of 3.3 percent, and HF recording a decline to a loss per share of Sh0.9 from a core earnings per share of Sh0.5 in quarter 3, 2017,” he added.
National Bank recorded the highest growth of 303.2 percent year on year that was realized after adding back the exceptional items expense of Sh500 million incurred in the third quarter of 2018.
The sector recorded weaker deposit growth, which came in at 7.4 percent, slower than the 13.8 percent growth recorded in quarter 3, 2017.
“Despite the slower deposit growth, interest expenses increased by 12.5 percent, indicating banks have been mobilizing expensive deposits, as well as taking up borrowed funds from international financial institutions, thereby driving up the interest expense,” the report states.