CBK data shows lenders recorded a profit before tax of Sh96.4 billion in the first half of this year.

Consolidated Bank Banking Hall. [Wilberforce Okwiri, Standard]

Banks widened their net interest in the first six months to an average of 5.68 per cent, a move that contributed to increased profitability.

Data from the Central Bank of Kenya (CBK) shows that net interest - the difference between what they charge borrowers and what they pay depositors was at a four-year-high in the period under review.

This was the widest interest-rate spread in the period ending July 2021 since July 2017 when it was estimated at 6.43 per cent, according to CBK data. This was the period between the county implemented the interest rate controls which put a ceiling on the cost of loans and floor on that of deposits.

Banks’ profitability in the first half of 2021 had largely increased on account of a resumption in loan repayment and growth in interest income.

KCB Bank more than doubled its net profits to Sh15.3 billion in the first six months of this year, compared to a profit after tax of Sh7.6 billion in the same period last year.

Equity Bank nearly doubled its profit after tax, which jumped by 98 per cent to Sh17.9 billion compared to a net profit of Sh9.1 billion by end of June 2020.

Absa Kenya’s profitability in the first half of this year grew more than nine-fold to Sh5.6 billion on increased repayment and aggressive cost management, including retrenchments.

In the first six months of 2020, the lender recorded a profit after tax of Sh600 million as it set aside a huge chunk of its revenues as insurance against possible loan defaults.

Co-operative Bank, another large lender that has already released its results, might not have posted huge profits but the profitability trend, going by data on profit before tax captured by Central Bank of Kenya (CBK) in the first five months, points to unprecedented growth for banks.

CBK data shows that lenders recorded a profit before tax of Sh96.4 billion in the first half of this year, a growth of 60.7 per cent compared to Sh60 billion that they made in the same period last year.

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

Ronak Gadhia, director for sub-Saharan Banks at EFG Hermes, an investment bank, noted in an earlier interview with The Standard that the main driver for the improvement in performance is a decline in loan-loss provisions.

He noted that last year, loan-loss provisions increased significantly due to a rise in non-performing loans as a fraction of total loans following the outbreak of the Covid-19 pandemic.

“While loan-loss provisions in the financial year 2021 remain relatively high compared to pre-pandemic levels, they are much lower than the financial year 2020 levels,” said Gadhia.

“Profitability is also being supported by improving efficiency as banks increasingly adopt digitisation strategies and modest loan growth.”