Kenya’s three largest rated banks have stronger cost-to-income ratios than their Nigerian counterparts, despite their higher retail overhead costs, Moody’s Investors Service have stated in a peer comparison report.
The report obtained wednesday, compared KCB Bank Kenya Limited, Equity Bank (Kenya) Limited and Co-operative Bank of Kenya Limited with Nigeria’s Access Bank Plc, Zenith Bank Plc and United Bank for Africa Plc.
According to the rating agency, Kenyan banks’ lower cost-to-income ratios primarily reflect their higher net interest margins derived from their greater exposure to retail clients.
By contrast, it pointed out that Nigerian banks’ lending was focused on lower-margin corporate clients.
Additionally, funding cost for Kenyan banks stood 100 basis points lower over the same period, reflecting their wider access to retail deposits, it added.
"Over the coming quarters, we expect Kenyan banks to maintain superior profitability to their Nigerian peers, owing to higher margins, stronger cost-to-income and lower loan-loss provisioning costs," Moody’s Analyst and the report’s co-author, Peter Mushangwe said.
"Kenyan banks will continue to benefit from their higher net interest margins (NIMs) because the recent removal of interest rate caps will support loan yields.
"However, Nigerian banks’ cost-to-income ratios will likely improve faster as they increase their higher-margin retail exposure while containing costs as they digitalise their operations and limit branch and staff expansion," it added.