Interest rate caps eat into bank’s first quarter profits

Business Daily Kenya:  Commercial Banks in Kenya recorded a marked decline in their profit growth during first three months of this year -...

Business Daily Kenya: 

Interest rates. Photo/Courtesy

Commercial Banks in Kenya recorded a marked decline in their profit growth during first three months of this year - the first reduction noted after the enactment of the Interest Rates cap passed in September last year. 

Nearly all the banks, except Diamond Trust Bank (DTB), registered a decline in the profit compared to what they were getting before the law was implemented.

According to the banks’ financial reports, DTB posted an 8.8 per cent rise in its core earnings per share (EPS) to Sh6.3 during the first quarter of 2017, compared to Sh5.8, it recorded in the same period last year.

EPS is one of the six metrics used by the investment companies to measure a company’s profitability per outstanding share of common stock. It is used as an indicator of the company’s performance. 

Investment analysts say DTB did well mainly due to the 0.1 per cent decline it recorded in its operating expenses and a 2.3 per cent rise in the operating revenue. No other bank in Kenya got such a positive increase in EPS. Among finance providers that recorded the highest decline in their core EPS was Family Bank, National Bank of Kenya  and Housing Finance, which posted a decline of 149.2 per cent, 81.8 per cent and 73.1 per cent respectively during the period compared to a similar period in the previous year.

Barclays Bank, Standard Chartered Bank, Co-op Bank, KCB Bank and Equity Group Holdings too reported a decline in their EPS during the first quarter.  KCB’s dropped by 8.35 per cent to Sh4.54 billion, Co-op Bank declined by 5.83 per cent to Sh3.23 billion, while Equity Group recorded the smallest drop of 5.64 per cent to Sh4.85 billion.

NBK recorded a decline in its core earnings per share to Sh0.2 in March 2017, compared to Sh1.1 it recorded during a similar period in first quarter of 2016.

According to statistics, most banks recorded decline in the interest income – which have solely been coming from the high interest charges on their customs.

Central Bank of Kenya Governor Dr Patrick Njoroge said late last month that while interest rate capping is not good for a free market economy like Kenya, the high interest rate charges are equally not conducive for economic growth.

He challenged commercial banks to adopt new business models different from what they have had in the past to ensure their resilience in the market.

The post Interest rate caps eat into bank’s first quarter profits appeared first on Mediamax Network Limited.

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