Banks in Kenya announced record profits in history on the back of heightened coronavirus restrictions which saw the majority of small businesses shut down, rendering thousands of Kenyans jobless.
Banks’ net profit through the 12 months to December 31, 2021, rose to Ksh.141.5 billion from Ksh.80.29 billion in 2020.
An analysis of the financial performance of the listed banks identifies the key factors that shaped the performance of the sector, according to the Cytonn report.
Regional Expansion through Mergers and Acquisitions
On May 3, 2021, I&M Group completed a 90.0 percent acquisition of Orient Bank Limited Uganda (OBL) share capital, after receiving all the required regulatory approvals at the cost of Ksh.3.6 billion. However, the final cost is yet to be revealed as it was expected to be higher after the base price was adjusted to take into account multiple factors such as appreciation of the Ugandan shilling against the US dollar, integration support, the short-term financial performance of the subsidiary and the sale of its property.
I&M Group took over 14 branches from OBL, taking its total branches to 87, from 75 branches as at the end of 2020.
On May 16, 2021, Equity Group acquired an additional 7.7 percent stake in Equity Bank Congo (EBC) from the German Sovereign Wealth Fund (KfW) valued at Ksh.996.0 million. The acquisition raised the total ownership in EBC to 94.3 percent valuing the company at Ksh.14.2 billion.
This followed the acquisition of 66.5 percent stake in Banque Commerciale Du Congo (BCDC) by Equity Group at a cost of Ksh.10.2 billion in August 2020.
On August 25, 2021, KCB Group completed the 62.1 percent acquisition of Banque Populaire du Rwanda Plc (BPR).
KCB Group and Atlas Mara Limited had signed a definitive agreement in November 2020 for KCB’s acquisition of a 62.1 percent stake in BPR at a cost of Ksh.5.8 billion. In May 2021, KCB Group made an offer to the remaining BPR shareholders to raise its acquisition stake in the bank to 100.0 percent from 62.1 percent bringing total cost to Ksh.6.3 trillion. Only regulatory approval are pending for the finalisation of the transactions.
On December 2, 2021, however, KCB announced the termination of their initial plans to acquire a 100.0 percent stake in African Banking Corporation Limited (ABC Tanzania) following the failure to receive certain regulatory approvals.
In November 2020, KCB Group had acquired a 100.0 percent stake in BancABC at a total of Ksh.6.4 billion. Despite the cancellation of the acquisition plans, KCB has assured its shareholders that it will continue pursuing attractive regional expansion opportunities to enhance their regional participation and accelerate growth.
Closure of Loan Restructuring Window
The loan restructuring window by the Central Bank of Kenya (CBK) provided to commercial banks and mortgage finance companies on loan restructuring which came to an end on March 2, 2021. This saw Ksh.1.7 trillion worth of loans restructured, representing 57 percent of the banking sector’s loan book.
With this measure, banks resumed normal loan risk management. However, despite the expiry of the loan restructuring window, Equity Group, KCB Group, Diamond Trust Bank and Cooperative Bank continued to support their customers.
During the age of COVID-19, a lot of restructuring happened to cushion banks from increased Non Performing Loans (NPL) provisions, which was improving loan book quality by re-engineering.
Decrease in Capital Adequacy risk weighting for all residential mortgages
CBK had reduced the capital adequacy risk weighting for all residential mortgages to 35.0% from 50.0%, effective July 1, 2021.
This created enabling environment for banks to lend more to the domestic residential mortgage market through availing long-term and secured funds to primary mortgage lenders.
Integration of Climate-Related Risk Management:
CBK released Guidance on Climate-Related Risk Management, highlighting that all banks and mortgage finance companies ought to integrate the risks and opportunities arising from climate change in their risk management, strategy and governance structure.
Mitigating factors in such strategy include financing activities such as the transition to renewable energy, appropriate housing, resilient infrastructure and innovative agricultural practices.
Banks are expected to build their capacity going forward to identify and mitigate the risks arising from climate change.
Suspension of the Listing of Borrower’s Negative Credit Information:
A 12-month suspension of listing of negative credit information for borrowers with loans below Ksh.5.0 million was announced by CBK, whose loans were performing previously, but became non-performing from October 1, 2021.
Even though CBK Governor Dr. Patrick Njoroge acknowledged that the move could prove hard for borrowers to access credit easily, was a measure to cushion Micro Small and Medium Enterprises (MSMEs) from adverse effects of the COVID-19 pandemic.
“We expect banks to be more cautious towards lending to MSMEs due to lack of adequate credit risk information on potential loan borrowers,” reads the report.
Regulation of Digital Lenders
The law to regulate digital credit providers in Kenyan was put up by the CBK on December 7, 2021 to pave way for the regulator to license provision of quick loans.
“We expect the move to streamline the digital lending services sector and weed out unscrupulous digital lenders who have taken advantage of the unregulated space to violate various consumer rights and privacy. Additionally, lenders will be able to acquire licenses to increase their market share and operate in a more favourable environment.
The regulations published on March 18, 2022, protects borrowers against the predatory practices of unregulated digital credit providers, particularly their high costs, unethical debt collection practices, and misuse of personal information.
