KCB Group posted a 41 per cent increase in first half net profit driven by rising uptake of loans and reduced cost of deposits as its subsidiaries continued to recover from years of loss-making. Ranked the largest bank in Kenya by assets, KCB said its net profit for the six months to June rose to Sh4 billion from Sh2.8 billion in a similar period last year.
Its net interest earnings grew to Sh10.5 billion from Sh8.7 billion in June 2010 helped by increased borrowing and reduced interest payments on customer deposits.
The cost of funds halved to Sh1 billion from Sh2 billion despite the bank growing its deposits by an additional Sh24 billion.
Its struggling subsidiaries, notably Tanzania, Uganda and Rwanda, contributed to the consolidated profit for the first time since it embarked on regional expansion in 2007, having broken even at the end of the first quarter. KCB is the second among the top-tier lenders after Equity Bank--who announced profit growth of 57 per cent on Monday -- to announce their first half earnings. Analysts expect the lenders to post double-digit growth in profit for 2011.
At the Nairobi Stock Exchange (NSE), the bank's share closed trading at Sh23 Thursday from Wednesday's Sh23.25. The share has gained 28 per cent over the past year.
The bank's CEO Martin Oduor-Otieno linked the performance to increased borrowing by companies and individuals and the fall in the cost of funds or deposits. "Our performance was lifted by a sharp rise in interest income and the profitability of all the subsidiaries that have previously posted losses," said Mr Oduor-Otieno.
The subsidiaries contributed Sh264 million or 6.6 per cent of its profit, a pointer that the bank is still far from achieving its target of generating half its profits from outside Kenya.
The bank is betting on the rising appetite for loans, notably mortgage products, to rev up its second half performance.
"The second half is going to be driven by the strong balance sheet we have already built. We are looking at long term loans that are going to generate interest income for longer duration," said Mr Oduor-Otieno.
The bank's lending grew from Sh130 billion in June 2010 and Sh148 billion in December to Sh175 billion in June in line with increased borrowing in Kenya's banking sector.
The surge in credit uptake signals a buildup in confidence in the economy as consumers become less wary of borrowing and lenders loosen their purse strings on reduced fears of defaults.
But depositors are emerging as the biggest losers in the sector's profit boom as the lenders have cut rates offered to savings from a high of 12 per cent of larger deposits in first half of 2010 to six per cent in a similar half this year. The decline in deposit rates is being seen as the product of increased cash fuelled by the ongoing recovery of the economy amid limited investment avenues for holders of large amounts of cash such as companies and fund managers. But the market is beginning to shift in favour of the depositors in the second half as the wholesale depositors increasingly ask for better returns in what has spurred some banks to increase their lending by between one and 1.5 per cent. In Kenya, KCB is betting on its big push in the property market, especially big ticket construction projects, to replicate the 2010 performance.
It has also moved deeper in the agency banking model that will allow it to spread its reach without renting space or hiring staff, which has been a big dilemma for the bank in its expansion drive.
The bank's staff costs increased to Sh5.3 billion from Sh4.3 billion driven by salaries to its more than 5, 500 workers and restructuring costs that saw the bank reduce its executive suite and kick off a voluntary retirement plan.
KCB is also keen to play the regional game urged on by the turnaround of the subsidiaries and is set to inject Sh1.9 billion this year in the regional shops to maintain the profit momentum.
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