Equity Bank will become the first major financier to release its half-year results Monday with investors looking to see whether lenders will replicate last year's stellar performance in light of rising interest rates.
KCB will release its results Tuesday, with analysts projecting that the second half of the year will see the loan book grow at a slower rate after banks increased their base lending rates.
"Personal loans is one key area to watch," said Mr Ochieng Oloo, a banking analyst with Think Business, which monitors performance in the financial sector.
Mr Oloo said he expects a slump in growth from the first quarter among retail borrowers. The rate of default could also rise as borrowers, also constrained by the high cost of goods and services, struggle to meet their repayment terms.
Data from the Central Bank of Kenya (CBK) indicates that the average commercial bank lending rate is 14.95 per cent up from 14.03 per cent in January. CBK's data shows that by February credit to private households accounted for 13.5 per cent or Sh134 billion of the Sh1.238 trillion loaned out to the private sector followed by trade at 12.4 per cent or Sh154 billion.
Rising rates are also a threat to other sources of income, especially bonds whose values get eroded by interest rate increases.Kenya Bankers Association chief executive Habil Olaka said that despite challenges earlier in the year that banks will post strong results going by recent upward revision of economic growth rates.
"We see ourselves positioning ourselves to drive this growth," said Mr Olaka.
The International Monetary Fund revised Kenya's growth rate for the year to June 2012 from 5.4 per cent to 5.7 per cent driven by improved productivity in the construction, financial services, transport and communication sectors.
African Development Bank put Kenya's economic growth at 5.4 per cent.
Equity results will particularly be of interest as it registered an 81 per cent growth in earnings per share in the first quarter, a pace that could see it become Kenya's most profitable bank this year.
"This would be an amazing feat considering the big multinational banks who have occupied that perch over the years," said Cynthia Omondi, a research analyst at African Alliance Investment Bank,
Equity Bank's EPS increased to Sh2.52 in the first quarter of 2011 from Sh1.35 over a similar quarter last year on the back of strong profit growth.
Cash deployed
The bank reported Sh2.3 billion in net profit for the first quarter of 2011 against Sh1.25 billion over a similar period last year, an 85 per cent leap. KCB's results will also give investors an indication on whether its expansion, for which it raised new money last year, is on track. "KCB's first quarter results came in at a slightly disappointing 0.2 per cent EPS growth indicating that the capital raised during last year's cash call has not been deployed as rapidly as we expected," said Ms Omondi.
Focus will also be on the effect of the firm's management restructuring costs. The profit for the quarter could also be affected by pay offs for the voluntary retirement undertaken last month that saw some executive directors and middle level managers leave the company.
Forex trading is another area where large banks make profits and the currency volatility in the last six moths may be reflected in their results."The rate you pay the bank as a borrower cannot be compared to what they would make from trading forex," said Mr Oloo, expecting little impact on results from this segment. The shilling has weakened to an all time lows against major currencies due to increased cost of imports from the energy and the grain sectors.
Mortgage lender
Housing Finance, the mortgage lender, released its half year results last week showing a 71 increase in after tax profit, in line with analyst expectations.
Net profits increased to Sh241 million in the second quarter from Sh142 million posted over a similar period in 2010. Mr Oloo said the profit growth reflected higher income from mortages sold, whose earnings are more assured because of stronger attachment to housing by borrowers.
Stockbrokers expect the results to trigger activity in a market dulled by negative sentiment in the financial sector.
"We foresee improved activity on financials as interim results for most banks start to come in. Focus will be on Equity, KCB, Co-op, Barclays and NIC," said researchers at Sterling Investment Bank.
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