Commercial banks rake in 71B in pretax profits

By Daisy Oloo

The banking sector witnessed an increase in the stock non-performing loans (FILE)

Commercial banks made 71 billion shillings in pretax profits during the first six months of this year.

This is according to the latest central bank supervision report that also indicates that the stock of gross non-performing loans has increased to 101 billion shillings driven by high interest rates.

Riding on the back of a high lending interest rates and challenges in the business environment, the banking sector witnessed an increase in the stock non-performing loans.

In the period under review, the gross value of NPLs increased by 6.9 percent from 95.1 billion shillings as at March to 101.7 billion shillings as at the close of last month.

The quality of assets, measured as a proportion of net non-performing loans to gross loans declined from 2 percent to 2.1 percent over the same period.

Similarly the sector recorded an increase in the ratio of gross NPLs to gross loans from 5.6 percent in March 2014 to 5.7 percent in June 2014.

The latest Central Bank supervision report indicates that non performing loans are most rampant in trade, personal loans, and real estate and manufacturing categories.

The four categories had 73.8 billion shillings in the non performing loans stock.

Despite this, the central bank says commercial banks are deploying enhanced appraisal standards to mitigate credit risk.

In the second quarter of 2014, banks recorded a 12.5% increase in pre-tax profit to 37.61 billion shillings, up from the previous quarter’s 33.42 billion shillings.

This has pushed up commutative pretax profits by commercial banks to 71.03 billion shillings in pretax profits during the first six months of this year.

CBK says the profit by banks was driven by interest income, fees and commissions as well as earnings from investment in government securities.

On the other hand, interest on deposits, staff costs and other expenses were the main components of expenses for banks during the period under review.

Going forward, CBK says the banking sector is expected to sustain its growth mainly supported by branch expansion, regional integration initiatives, advances in information and communications technology and the adoption of the devolved governance system in Kenya.