18 May 2017

Kenya: DTB First Quarter Profit Up 8.8 Per Cent On State Lending

Diamond Trust Bank (DTB) Group #ticker:DTK has announced an 8.8 per cent growth in net profit in the first three months of the year to March boosted by increased income from investment in government securities that cushion it from the effects of interest rates capping.

The lender reported an after-tax profit of Sh1.75 billion up from Sh1.61 billion during the first quarter last year.

While interest income from loans and advances fell 11.69 per cent, return on government securities rose 40 per cent to Sh2.6 billion from Sh1.86 billion in the first quarter of 2016.

"We were able to absorb the effects [of the interest rates cap] and it has been made possible by the growth in customer deposits and in government securities," said DTB head of finance and planning Alkarim Jiwa.

Banks have been increasing their lending to government as they respond to a rule that caps interest on customer loans at four percentage points above the Central Bank Rate.

DTB's customer deposits grew 22 per cent to Sh251.43 billion. Mr Jiwa attributed this to an ongoing campaign by the bank to deepen its presence in the country, especially through digital channels.

Analysts have also noted that top tier banks like DTB have been the beneficiaries of a trend in which customers are seeking to put their money with institutions that are considered stable.

"We attribute the relatively modest impact of the rate cut (especially to historical levels) to banks offsetting the decline in loan yields by earning higher returns on government T-bills and reducing their cost of deposits (due to a flight to quality of deposits from weaker Tier 2 banks)," said Exotix partners in a research note on Thursday.

The lender's gross non-performing loans grew to Sh8.44 billion from Sh7.2 billion, a reflection of the tough economic times that have left businesses and individuals unable to service their debt.

Nevertheless, DTB cut its loan loss provision to Sh634.97 million from Sh886.4 million.

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