Kenya: Banks’ Revenues hit by rate cap and liquidity crunch

Kenya: Rate Cap, Liquidity Crunch Hit Banks' Revenues

Kenyan banks are struggling to mobilise deposits, which could further dent their profitability amid declining income from loans and advances.

And now, the lenders are looking for cheap funds to lend to the government through Treasury bills and bonds after declaring that households and small businesses were risky after an interest rate cap regime was ushered in in 2016.

A review of the results of a few top banks that have released their 2017 full-year results shows that retail banks performed relatively better in deposit mobilisation compared with the corporate-focused lenders.

Customer deposits

For instance, Kenya Commercial Bank’s customer deposits increased 11.5 per cent to $5 billion in 2017, from $4.48 billion the previous year. The regional lender attributed the increase to the continuing “flight to safety” of customers after the collapse of some banks.

Stanbic Bank Kenya’s customer deposits increased 25 per cent to $1.53 billion, from $1.21 billion while Barclays Bank of Kenya saw its customer deposits increase by 4.3 per cent to $1.85 billion, from $1.78 billion in the same period in 2016.

Analysts at Standard Investment Bank said on a quarterly basis, the banks registered a $144 million contraction in customer deposits, even though some have maintained their dividend payment policy to appease shareholders.

For KCB, in comparison with the proportion of balance sheet, like the previous year, the additional deposits went to lending, not disproportionately to T-bills, unlike Stanbic and Barclays, which almost closed the lending taps to corporates and SMEs.

“KCB had an impressive performance,” said Deepak Dave, an analyst with Riverside Capital.”The deposit growth was above inflation, and this shows the value of brand in a tough market. Their non-performing loans were kept under control, and the raised deposits at 60 per cent went primarily to new lending, while the rest went to debt repayment and cash placements optimising interest margin.”The bank also saw its interest income from loans and advances dip by $390,000 despite its loan book growing 10 per cent, to close the year at $4.2 billion.

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