Equity Bank Kenyatta Avenue Branch in Nairobi. PHOTO | DIANA NGILA | NMG Bank customers paid Sh84.1 billion in fees, commissions and service charges in the six months to end of June, as the lenders devised new channels of boosting their revenue to compensate for lower interest income from loans.
An analysis of the half-year performance for 39 out of 40 Kenyan banks shows the lenders’ non-interest income increased by Sh12 billion (16.8 percent) in the first half of the year, helping to cover for slimmer interest margins.
The banking sector data shows non-funded income was the fastest-growing revenue stream for the lenders, driving the growth of their after-tax profit in the six months by 14.2 percent to Sh67.12 billion.
Interest income from customer loans, which is the banks’ core revenue stream, went up by only 1.3 percent or Sh1.86 billion in the period to stand at Sh145 billion. On the other hand, interest income from government securities rose by nine percent or Sh5.5 billion to stand at Sh66.6 billion.
Banks have been forced to become more creative in their income generation methods since Parliament imposed controls on the cost of loans in September 2016, which put a ceiling on the margins they can extract from their loan books.
Falling yields
The refuge of government securities has also tightened due to falling yields on Treasury bonds and bills, amid pressure on the government to curb its borrowing costs.
The increased use of digital platforms to disburse loans and handle transactions has opened new sources of fees and commissions for banks, helping them to navigate the interest rates cap.
Lenders have also increased the amount of fees and service charges on loans as a way of compensating for the loss of margin and inability to price in customers’ default risk.
"Most of the banks, especially the large lenders, are using these digital platforms to do a lot of lending. These products have facility fees, which the banks are leveraging on to grow non-funded income," said Patrick Mumu, an analyst at investment bank Genghis Capital.
The digital lending platforms operated by Tier One banks include Commercial Bank of Africa’s M-Shwari, KCB M-Pesa, Equity Bank’s Equitel and EazyApp, Barclays Kenya’s Timiza and Co-operative Bank’s M-Co-op Cash.They have quickly gained millions of users, who are attracted by the ease of accessing loans and the convenience of banking without visiting physical branches.Fees charged on loans are also not counted as part of […]
