Shareholders set for a piece of Sh132 billion banks’ windfall

Shareholders set for a piece of Sh132 billion banks’ windfall

If the Covid-19 pandemic that violently shook the economy for the better part of last year did not kill local banks, then it has made them stronger. Slightly over a year since the country recorded its first case of the deadly virus, Kenyan banks appear to be on steroids.

The latest data from the Central Bank of Kenya (CBK) shows that they recorded a profit before tax of Sh60 billion in four months, nearly what they made in the first six months of last year.

After a tumultuous 2020, bank shareholders, some of whom have gone for two years without a piece of the bank profits, are now positioning themselves for a bumper harvest this year. READ MORE

As the economy reawakens and borrowers who had difficulties servicing their loans begin to repay their debts, billions of shillings that banks had set aside as insurance against possible defaults have been freed, swelling the lenders’ bottom lines.

With borrowers religiously servicing their debts, interest income has gone up.

And it does not end there. Because the funds that had been set aside for possible defaults had already been taxed last year, banks will not be paying taxes on the recovered bad debt charges.

And in the event of the loans being written off, banks will still claim back the taxes they paid on the insurance funds as an expense that had been subjected to the 30 per cent corporate income tax.

In total, the nine largest banks with three-quarters market size, are looking at recovering close to Sh131.8 billion from the loan loss provisions and tax credits.

A big chunk of the money, about Sh111.3 billion, is loan-loss provisions, while the remaining Sh20.6 billion is in the form of tax credits.

Expectedly, Equity Bank, now the most profitable bank in the country, will reap the biggest, having put up a wall of provisions amounting to Sh26.6 billion and a tax credit of Sh8.23 billion, taking the total to Sh34.83 billion.

KCB, Kenya’s largest bank by market size, is looking to recover some Sh32.3 billion in the same fashion.Loan-loss provision for NCBA, the third-largest bank, was Sh20.4 billion, while its deferred tax credit was Sh2.5 billion, which means the bank, which is associated with President Uhuru Kenyatta’s family, stands to recover Sh22.9 billion.Co-operative Bank, on the other hand, expects to claw back close to Sh7.46 billion, Absa Bank Sh9.42 billion and Standard Chartered Sh4.97 billion.Diamond Trust Bank will be Sh12.2 […]

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