LENDING

Banks fall back to customer loans in Q1 as bonds interest decline

Investment in government securities held to maturity increased to Sh45.8bn from Sh43.9bn.

In Summary

• Fast growth in loans compared to the deposits loans led to a rise in the loan to deposit ratio to 50.5 per cent from 49.1 per cent in the previous quarter.

• On May 30, the Treasury re-opened two 15-year Treasury bonds issued in 2018 and 2012, a bid to raise 40.0 billion shillings for budgetary support.

A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017.
A general view shows people walking past the Central Bank of Kenya headquarters building along Haile Selassie avenue in Nairobi, on October 9, 2017.
Image: REUTERS

Commercial banks have been increasing their lending to customers in the three months to March as they avoid low-interest rate offered by the Treasury Bonds.

Kenya's four largest lenders in customer base, Equity Bank, KCB, CBA Kenya, and Standard Chartered reported increased loan disbursement to borrowers in their Q1 financial results, depicting a need to increase profits through loans and beat the lower interests from two-year hold on government securities since the introduction of interest caps.

At Equity Bank Kenya, loans and advances to customers raised to Sh229.28 billion in Q1 compared to Sh206.86 billion in Q1 2018.

 

Consequently, the Group with operations in five other markets Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo also raised the loans to Sh305.53 billion from Sh271.07 billion.

KCB Bank' net loans and advances also increased to Sh424.82 billion from Sh383.87 billion over the same period. Interest income from loans grew by 5.9 per cent to Sh12.10 billion from Sh11.42 billion, slightly behind interest income from government securities which grew by 7.2 per cent to Sh 2.76 billion from Sh2.56 billion.

CBA's loans grew to Sh111.52 billion from Sh98.78 between the quarter of 2018 and 2018, as interest income from the disbursed loans grew to Sh2.61 billion from Sh2.42 billion over the period.

Investment in government securities held to maturity increased to Sh45.87 billion from Sh43.99 billion while money available for sale in the segment declined to Sh14.64 billion from Sh19.63 billion.

And as a result, interest from government securities declined to Sh1.55 billion from Sh1.63 billion.

In Standard Chartered, loan book grew by 3.3 per cent to Sh117.6 billion, from Sh113.8 billion in Q1 2018. This was coupled with a 13.9 per cent growth in government securities to Sh142.3 billion, from Sh125.0 billion.

According to Cytonn, the fast growth in loans compared to the deposits loans led to a rise in the loan to deposit ratio to 50.5 per cent from 49.1 per cent in the previous quarter.

 
 

However, Co-operative Bank' loans to customers saw a 5.7 per cent decline to Sh249.79 billion from Sh251.21 billion. Interest income also declined to Sh7.09 billion from Sh8.27 billion.

On the other side, government securities held to maturity increased to Sh70.99 billion from Sh49.05 billion. Investment held for sale grew to Sh32.74 billion from Sh25.70 billion with interest on matured investments increasing to Sh2.76 billion from Sh1.98 billion.

The consistent returns to market by Treasury to finance fiscal deficit as well as growth in customer loans could be an indication of an impassive appetite from banks due to longer tenors and lower interest rates.

On May 30, in an advertised notice, the Treasury re-opened two 15-year Treasury bonds issued in 2018 and 2012, a bid to raise 40.0 billion shillings for budgetary support.

The (FXD1/2018/15) and FXD1/2012/15 have fixed interest rates at set at 12.65 per cent and 11.0 per cent annually with a maturity rate of 13.94 years (2033) and 8.42 years (2027) respectively.

On the first issue of the FXD1/2018/15, the government accepted Sh12.9 billion out of the Sh20.2 billion worth of bids received, translating to an acceptance rate of 63.6 per cent.

The auction’s subscription was low compared to the 2018’s average of 101.5 per cent due to rejection of expensive bids.

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