NIC Bank's net earnings for 2018 rose by a slim two percent to Sh4.23 billion on the back of higher non-funded income and a cut in loan loss provision that offset falling interest income.
The mid-tier lender was able to reverse the profit fall that it had recorded in 2017 largely due to the 11.4 percent rise in non-interest income to Sh4.64 billion.
Interest income fell by 1.8 percent to Sh10.58 billion, on a contracting loan book that stood at Sh118.1 billion compared to Sh119.8 billion previously.
NIC instead turned to government securities to grow its lending portfolio, raising its holdings of the paper to Sh58.1 billion from Sh51.5 billion.
"The contraction (in interest income) suggests the bank lowered its interest charges on loans to support the falling loan-book," said Apex Africa investment bank analyst Harrison Gitau in a note on the results.
"The bank has increased investment in government securities of late to insulate itself from the rate capping effects on its interest income."
The bank also boosted its bottom line by reducing the provision for bad loans by a fifth to Sh2.35 billion, even as the stock of non-performing loans rose from Sh14.3 billion at the end of 2017 to Sh16.8 billion last year.
A number of banks cut the amount of provisions for bad loans on their income statement and instead provided for them on their capital reserves -- thus boosting their profits -- taking advantage of a one-off opportunity to do so as they shifted to the IFRS 9 accounting standard that came into effect in January 2018.
Shareholders are set to enjoy a higher dividend of Sh1.25 a share, up from Sh1 in 2017.
It is set to merge with CBA this year.