KCB beats Equity to maintain top spot as the most profitable lender

KCB Kipande house. Photo/Monicah Mwangi
KCB Kipande house. Photo/Monicah Mwangi

KCB group maintained its position as the most profitable lender in the country for the nine month ending September, ahead of Equity Bank.

Both banks, Kenya’s two biggest by profit and assets size, announced their third quarter performance, placing KCB ahead of its top rival Equity.

KCB Group posted a 19.63 per cent growth in net profit to Sh18.04 billion while Equity’s profit after tax increased by eight per cent to Sh15.8 billion, giving KCB a Sh2.24 billion lead.

The difference is much larger than the second quarter, when KCB announced a 17.48 per cent net profit increase to Sh12.1 billion, while Equity’s after-tax profit rose 17.52 per cent to Sh11 billion.

According to both lenders, the good performance was driven by improved cost management and increased gains from higher interest income.

Reeling in from the effects of the law capping interest rates on commercial loans at four per cent above the Central Bank rate, Equity was able to increase its net interest income by Sh1.98 billion while KCB raked in Sh630 million.

On the other hand, to mitigate operational costs, both lenders cut their total operating expenses with KCB reducing their cost of conducting business by Sh2.1 billion to Sh28.64 billion while Equity cut costs by Sh1.12 billion to Sh26.89 billion.

Both banks reduced their provisioning for bad loans during the review with KCB’s loan loss provisions reducing by Sh1.34 billion while Equity dropped loan provisions by sh1.56 billion. This despite the IFRS 9 coming into effect in January.

The new accounting standards require banks to set aside funds for all loans based on their risk factor rather than just non-performing loans.

Other top tier lenders who have made significant reductions in their loan loss provisions despite a higher stock of bad loans are Cooperative Bank and Diamond Trust Bank.

Of the the six tier-one lenders that have so far released their results, only Barclays has made an increase in loan provisions.

The lender posted a two per cent increase in net profit to Sh5.44 billion for the review period, attributing the slower performance to a slight growth in total income, which was evened out by growth in operational costs and IFRS 9 provisions.

In line with the adoption of the new accounting standards, the bank’s impairment increased by 21 per cent as the bank had to increase its loan loss provisions.

Diamond Trust Bank’s net profit in the review period stood at Sh5.2 billion while Stanchart increased its profit after tax by 34 per cent to Sh6.3 billion.

WATCH: The latest videos from the Star