By O’Brien Kimani
Banks were less profitable in 2015 weighed down by a growing portfolio of non-performing loans and rising expenses.
Profit before tax fell 5.03 percent to 134 billion shillings in 2015 from 141 billion shillings recorded the previous year.
The banking sector report by the Central Bank of Kenya indicates that banks registered an increase in bad debt charges and interest expenses of 11.6 billion and 30 billion shillings respectively.
According to the report, technology is disrupting the banking sector in the country where mobile and agency banking is growing faster than conventional banking.
Banks added 80 branches in total last year compared to 4,745 banks’ agents and 1,096 microfinance agents contracted last year.
The agency banking model is dominated by the three biggest lenders in the country namely Equity Bank with 16,734 agents, KCB with 11,948 and Co-operative Bank with 7,956.
However, despite the growth in technology, banks in Kenya were less profitable last year due to faster growth in expenses compared to the growth in income.
The banks’ income increased by 9.1 percent but expenses increased by a higher margin of 16.3 per cent over the same period.
The banks income declined as a result of slower growth in credit in 2015, which grew by 11.6 percent compared to 23 percent the previous year.
In terms of real profitability KCB was the most profitable bank in the country while Equatorial commercial bank was the least profitable.
Equity Bank had the highest number of customers. In the same period there was a sharp spike in the number of bad debts.
The increase in bad debt charge of 67.7 per cent is attributable to increased level of non-performing loans, which necessitated higher levels of provisions. Non-performing loans increased by 36 percent to 147.3 billion shillings in 2015 from 108.3 billion shillings the previous year.
Similarly, the ratio of gross non-performing loans to gross loans increased from 5.6 percent in 2014 to 6.8 percent last year. Salaries and wages increased by 2.9 per cent to 77.6 billion in December 2015.
Automated teller machines increased in 2015 by 105 ATMs or 4 per cent as compared to 126 ATMs or 5.1 percent increase in 2014.
Customer deposits increased by 8.73 percent from 2.3 trillion shillings in December 2014 to 2.5 trillion shillings in December 2015.