In Summary
  • Report shown that the banking sector grew by 3.8 per cent in the first half of 2019.

  • Interest expenses increased at a slower pace of 5.3 per cent, compared to 12 per cent in first half of 2018.

  • To increase the market share, banks are expected to form strategic partnerships.  

The banking sector had a slower growth in the first half of 2019 compared to the performance recorded in a similar period last year.

According to a report by Investment think tank, Cytonn Investment company, the banking sector grew by 3.8 per cent in the first half of 2019, which is slower than 6.4 per cent in the same period last year.

Kenya listed banks recorded a 9 per cent average increase in core Earnings Per Share, compared to a growth of 19 per cent in the first half of 2018.

AVERAGE EQUITY

In a report titled: Outlook and Focus on Areas of the banking Sector Going Forward, Cytonn Investments says as a result, the return on average equity decreased marginally to 19.3 per cent compared to 19.5 per cent in a similar period in 2018.

Deposits growth was 8.6 per cent slower than 10 per cent growth recorded in the first half of 2018.

Interest expenses, however, increased at a slower pace of 5.3 per cent, compared to 12 per cent in first half of 2018. This means the financial institutions have been able to mobilise relatively cheaper deposits.

However, there was good news on loan portfolio as average loan growth came in at 9.8 per cent which was faster than 3.8 per cent recorded in the first half of last year indicating there was an improvement in credit extension to the economy.

Government securities on the other hand recorded growth of 12.1 per cent which was slower growth rate compared to 14.9 per cent in first half of 2018.

PRIVATE SECTOR

This shows banks have begun to adjust their business models, focusing more on private sector lending as opposed to investing in government securities, whose yields declined during the year.

The Cytonn reports says that the sluggish growth is largely attributed to the slower expansion of funded income segments.

“Funded income continues to record relatively slower growth, affected by the declining yields in both loans and government securities,” said the report.

The report also said that the interest rate cap has not achieved its intended objectives of easing the access to credit and reducing the cost of credit.

Cytonn suggests that interest cap rule should be reviewed so as to spur economic growth as medium Small Medium Enterprises (SMESs) have continued to struggle in accessing the much needed credit.

BANK FUNDING

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