Business Daily (Nairobi)
Johnstone Ole Turana
30 October 2009
KCB Group on Thursday posted a 1.3 per cent increase in profit for the first nine months of the year as costs from its expansion drive ate into its marginal income.
The bank opened 33 branches in the period under review, pushing its branch count across the region to 203.
But Kenya's difficult economic environment slowed down the bank's ability to generate higher transaction income and lend more to individuals and companies.
As a result, the Sh2.2 billion that the bank generated from loans, transaction fees and foreign exchange earnings were eaten by the Sh2.1 billion additional costs that were mainly driven by expansion expenditures.
This saw the bank increase its profit before tax to Sh5.275 billion compared to Sh5.2 billion it posted in a similar period a year earlier.
"Our regional expansion plan and installation of a new core banking system, T24, has pushed our cost of operation up eroding our bottom line," Mr Martin Oduor-Otieno, the bank's chief executive officer, said.
The bank was hoping to boost its lending through the new outlets, but Kenya's soft economy, which was hurt by famine and skyhigh inflation levels, made it difficult for small business and individuals to borrow money.
KCB shares were on Thursday priced at Sh19.80, down from Sh19.90 at the close of trading on Wednesday.
The economy grew by 2.1 per cent in the second quarter, compared with a 2.2 per cent growth during a similar period in 2008, making it the slowest quarter two growth since 2003 when output expanded by a margin of 0.4 per cent.
This has caused layoffs and a freeze in hiring leading to a drop in earning power, which has made it difficult for salaried individuals to re-pay their loans, while the resulting cutbacks in spending by families means lower demand for businesses -- which has also affected the ability of businesses to pay loans in time.
The industry results are expected to reflect the challenge of loaning to small and mid sized business and households.
Equity Bank announced flat earnings and it remains to be seen whether the industry's top dogs including Standard Chartered Bank and Barclays Bank will defy this trend.
For Equity, the weak cash generation of small businesses and the under performing agricultural sector, which account for huge portions of its loan portfolio, has continued to slow down its profit before tax was at Sh4.254 billion in September 2009 compared to Sh4.261 billion in June 2008.
This came against the backdrop of gross non-performing loans (NPLs) rising by 51 per cent to Sh4.46 billion compared to Sh2.75 billion in December 2008 -- a pointer that its customers have found it difficult to repay their loans on time.
In addition, increased competition for fund from the government, corporate sectors through issuance of corporate bonds and other players such as microfinance institution and Saccos has forced banks to up deposit interest rates to attract funds, which further hurt their earnings.
Mr Oduor-Otieno indicated that the grounds for deposit mobilization have shifted hence the need to pay more which in effect eats into the margins.
But on a year- to -year basis, the bank grew its loan book by 31 per cent to Sh114 billion from Sh88 billion.
The growth of the loan book though not matched by income growth is expected to provide the bank with future income, hence positioning it for better returns.
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