Kenya’s entire banking industry’s balance sheet size grew by 10.2% to KSh 6.4 Trillion at the end of the third quarter of this year, ending in September 2022.
According to the released Central Bank of Kenya(CBK) Credit Survey Report, this increase is compared to a balance sheet size of KSh 5.8 Trillion at the end of September 2021.
This growth in the industry’s balance sheet size was due to a 12.6 per cent growth in the loan book, which hit KSh 3.6 Trillion in Q3, 2022 from KSh 3.2 Trillion at the end of September last year. Deposits grew to KSh 4.6 Trillion at the end of September this year from KSh 4.3 Trillion over the same 9 months of last year.
According to the CBK report, the banking industry’s balance sheet increased its size from KSh 6.2 Trillion in June 2022 to KSh 6.4 Trillion in September 2022.
On a quarterly basis, the banking industry’s loan book increased by 2.9% from KSh 3.5 Trillion in June 2022. This growth is attributed to increase in credit extended for working capital purposes, and loans granted to individual borrowers.
The quarterly Credit Officer Survey is undertaken by the CBK to identify the potential drivers of credit risk in the banking sector.
For the quarter that ended 30th September 2022, 38 operating commercial banks and 1 mortgage finance company participated in the survey.
Pre-tax profit for the entire Kenyan Banking sector increased to KSh 67.2 Billion at the end of September 2022 compared to KSh 49.1 Billion at the close of the third quarter of last year, a growth of 36.9%.
The industry’s pre-tax profit increased from KS 62.5 Billion in June 2022 to KSh 67.2 Billion in September 2022, an increase of 7.5%, as the industry’s operating income increased by KSh 10.7 Billion while operating expenses increased by KSh 5.9 Billion.
The Sector’s Return on Equity (RoE) increased by 40 bps to 27.2% in September 2022, from 26.8% in June 2022. This compares with other economies in the world where RoE averages 13.9%.
Experts indicate that these figures indicate an overreliance on banks as a source of capital, which pose challenges to the ordinary person due to the high cost of lending. To avoid the overreliance on banks, observers maintain that there is a need to stimulate the capital markets to offer alternative sources of capital,
Kenya’s Banking Sector Asset Quality improved to 13.7% in September 2022, from 14.7% recorded in June 2022, attributable to a 4.4% decrease in gross non-performing loans and a 2.9% increase in gross loans.
The improvement in asset quality during the quarter is attributable to the improved business environment in the country following a peaceful general election held in August 2022 which has in turn led to improved loan repayment capacity by creditors and helped reduce credit risk.
The Capital Adequacy ratio remained above the statutory requirement of 14.5% with the ratio increasing marginally by 0.2% points to 19.0% in September 2022 from 18.8% recorded in June 2022.
The increase is due to a higher increase in Total Capital of 3.3% compared to a 2.5% increase in Total Risk-Weighted Assets.
Liquidity in the banking sector declined marginally to 51.5% in September 2022 from 52.5% in June 2022, however, it was 31.5% above the statutory minimum requirement of 20.0%.
Financial experts project that increased lending by the banking sector will continue supporting the banking sector’s profitability due to a subsequent increase in interest income.
Additionally, the continued shift to risk-based pricing will positively affect the bottom lines as seen by the average lending rate increasing to 12.7% in June 2022 from 12.2% in May 2022.
However, risks abound mainly on the back of the increased inflationary pressures in Kenya, which hit 9.6% in October, the highest level in 5 years as well as the continued weakening of the Kenya Shilling against the US dollar.
The month of November also had the monthly Purchasing Managers Index(PMI) come in at 48.8 for the first ten months of 2022, an indication of a deteriorating business environment.
