Top banks in Kenya have raised a red flag over an expected significant drop in net earnings for the year 2020.
They cite deteriorating economic conditions and the Covid-19 containment measures, which have seen the entire banking industry lose over Ksh1.2 billion ($11 million) worth of revenues from card payments to telcos mobile payment platforms in nine months.
The Central bank’s latest data shows that Kenyan banks lost Ksh1.26 billion ($11.55 million) worth of card payment business to mobile telephone operators between March and November last year as customers stopped using debit cards, credit cards and prepaid charge cards in favour of mobile money payment platforms such as M-Pesa, whose transactions of up to Ksh1,000 ($9.17) were made free of charge.
During the period, CBK also provided a shot in the arm for mobile money payment options by abolishing charges on the transfer of money from customers’ bank accounts to mobile money wallets and vice versa.
The banking regulator also increased the transaction limit for mobile money to Ksh150,000 ($1,376) from Ksh70,000 ($642) and increased the daily limit for mobile money transactions and mobile money wallet limit to Ksh300, 000 ($2,752) from Ksh140, 000 ($1,284).
As a result, data from Central Bank shows that the value of payment transactions through banks’ debit cards, credit cards and prepaid charge cards declined by eight per cent to Ksh13.79 billion ($126.51 million) in November 2020 from Ksh15.05 billion ($138.07 million) in March 2020.
On the other hand, the value of mobile money payments increased by 44.5 percent to Ksh526.8 billion ($4.83 billion) from Ksh364.51 billion ($3.34 billion) in the same period.
So far, six top banks have issued profit warnings cautioning shareholders that their earnings for 2020 will fall by at least 25 per cent, implying that the shareholders should brace for reduced or no dividends, while bank managers could go without bonuses.
The lenders include Standard Chartered Bank Kenya, Absa Bank, I&M Bank, Diamond Trust Bank, NCBA and Co-operative bank, with signs that more banks could issue profit warnings.
Market analysts argue that while Covid-19 pandemic containment measures have hit the banks’ earnings hard, the lenders’ fundamentals had begun to weaken prior to the pandemic owing to macroeconomic shifts.
"This period (Covid-19) was more a secondary catalyst than the core driver of lower earnings," said Daniel Kuyoh, a Nairobi-based financial analyst."Lenders have largely kept to their traditional business models with Kenyan banks focusing largely on trading government bonds rather than lending […]