- According to the report, regional expansion and deployment of digitalisation will support large banks’ earnings.
- On Tuesday, KCB Group reported a 21.4 per cent growth in net earnings for the nine months of the year.
Large banks' strong profitability will remain a credit strength in 2022 despite adverse conditions and rising loan impairment charges, according to a global rating firm
Fitch Rating's latest Kenya banking sector outlook shows Return on Asset (RoA) for top banks in Kenya will rise from 3.5 per cent to five per cent while Return on Equity (RoE) will improve by 80 basis points from23.8 per cent.
According to the report, regional expansion and digitalisation will support large banks’ earnings.
Despite the uncertainty brought about by economic slowdown, annual private-sector credit growth peaked at 12.3 per cent in the first half as lending to SMEs and households increased following the post-pandemic recovery and the approval of banks’ risk-based models.
The average total capital adequacy ratio (CAR) for the larger banks peaked to its highest level over the past four years (end-2021: 18.8 per cent; end-2020: 18.5 per cent).
"The large banks’ capitalisation will remain stable, supported by robust pre-impairment operating profitability,'' Fitch says.
It adds that large Kenyan banks are well-funded by stable and low-cost domestic customer deposits, supported by established domestic franchises and wide distribution channels.
There is a low reliance on external and foreign-currency funding, which, in turn, supports the banks’ sufficient liquidity positions.
The report comes at a time banks are reporting huge profits for the first nine months of the year.
On Tuesday, KCB Group reported a 21.4 per cent growth in net earnings for the nine months of the year. Net profits rose to Sh30.6 billion compared to Sh25.2 billion same period last year.
This was attributed to sustained growth from both net interest and non-funded income lines.
The contribution of Group businesses, which excludes KCB Bank Kenya stood at 16.3 per cent (up from 15.2 percent) driven by new businesses and the impact of Banque Populaire du Rwanda (BPR).
The balance sheet expanded 13.7 per cent with total assets standing at Sh1.28 trillion largely driven by growth in loans, investment in government securities funded by growth in customer deposits and additional borrowings.
Other top banks including Equity Group, Cooperative Bank Group and NCBA Bank are expected to release their third quarter profits before end of the week and going by half-year results are expected to post profits.
Smaller banks are however expected to report lower income this financial year, with Fitch recommending consolidation.
Yesterday, tier 2 lender, National Bank of Kenya (NBK) reported a 26 per cent drop in earnings, perhaps confirming Fitch's position.
The bank's Q3 earnings dropped to Sh886 million compared to Sh1.17 billion reported same period last year.
It attributed the drop to high operational costs that rose 12 per cent to Sh5.6 billion in the review period.