East Africa’s Top Banks Weather the Storm to Post Impressive Results


East Africa’s top banks have defied the tough economic crisis of the pandemic to report a rise in profits. The resilience of top banks has been tested by mobile money transfer and rising defaults in loan repayments. Moreover, sluggish economic growth  forced banks to freeze credit facilities available to the private sector.

Mobile Money and Loan Repayments

In a bid to cushion Kenyans from the vagaries of the pandemic, Central Bank of Kenya (CBK) stripped mobile money transfer charges on telcos. Between March and November of 2020 customers stopped using debit cards, credit cards and prepaid charge cards in favor of mobile money payment platforms such as M-Pesa. Subsequently, Kenyan banks lost Ksh 1.26 billion in card repayments to mobile payment platforms.

CBK also restructured loan repayments to cushion borrowers from the effects of the pandemic. Borrowers were provided with various restructuring options including extension of repayment period, moratorium on principal or interest and waivers on interest or fees. Central Bank, in consultation with the banks, agreed on a one-year period from March 2020 to extend emergency measures to cushion borrowers from the economic effects of the coronavirus.

In Addition, private sector credit growth collapsed back 7.7 per cent in March 2021, the lowest rate since October. Banks have frozen new loan issues on renewed pandemic fears. According to the Central Bank of Kenya (CBK), net loans advanced by the banking industry shrunk to just Ksh.105 million during the month. The freeze in lending is attributed to unchanged demand for credit by businesses who may as well be staring at uncertainty during the pandemic. Perceived demand for credit decreased significantly in the real estate sector from the subdued demand for housing units.

Impressive Q1 Results

Listed lender Equity Bank has recorded an after-tax profit of Ksh 8.7 billion in the first quarter of 2021. The result is a 64 percent increase from a profit of Ksh. 5.3 billion recorded in the same period last year. However, Equity avoided paying a dividend for a second year in a row. According to the lender, it was required to hold more capital after its deposits jumped by 53%.

Equity, which operates in six countries, saw its net interest income jump 23%. On the flip side, NCBA Bank’s net interest income surged 92%, The lenders increased provisions for bad loans in 2020 threefold and fivefold respectively, which drove last earnings lower. To grow income, NCBA Bank plans to increase lending to the state following a 15% jump in such loans last year, according to Chief Executive Officer John Gachora.

Kingdom Bank is projecting at least Sh300 million pre-tax profit this financial year, after being acquired by Co-operative Bank. Co-operative Bank of Kenya last year acquired 90 percent stake in Jamii Bora at Sh1 billion, introduced a new management team and rebranded it to Kingdom Bank.

On the other hand, Kenya Commercial Bank (KCB) recorded a net profit of Ksh. 6.37 billion. This is a 1.7 percent increase from a profit of Ksh. 6.26 billion posted in the same period last year. In 2020, KCB Group’s net profit declined 22 per cent to Sh19.6 billion on the back of increased provisions for coronavirus-related defaults. Unlike Equity bank, KCB declared a dividend of Ksh1 per share, representing a 71.4 per cent drop from its normal payout of Ksh3.5 per share.

In addition, KCB is set to acquire two banks in Rwanda and Tanzania. The group’s shareholders approved a proposal to acquire up to 100 percent of issued ordinary shares in Banque Populaire Du Rwanda (BPR) and African Banking Corporation Tanzania Ltd (BancABC). According to KCB Chairman Andrew Kairu, the expansion is part of the bank’s strategy to achieve regional relevance and take advantage of the existing market opportunities.

“These acquisitions give us a stronger edge to play a bigger role in driving the financial inclusion agenda in East Africa,” said KCB Chairman Andrew Kairu. Consequently, increasing the brands footprint in East Africa will build a robust financially sustainable banking sector. “As the economy continues to reopen, we are strengthening our balance sheet to give us room to support our customers and stakeholders through the crisis,” said KCB Chief Executive Joshua Oigara.

About Dickson Soire

Dickson Soire is a journalist from Kenya. He endeavors to use his skills in journalism, teaching and animation to educate, inspire and entertain young audiences. He aims to create relevant, timely and informative videos and articles that make technical information accessible to the public.