Commercial banks operating in Kenya collectively posted a 5.65% rise in profit before tax to Sh81.2 Billion in the six months to June 2016 compared to Sh 76.9 Billion posted in June last year. Despite the profits, the sector recorded an 8.4% increase in Non Performing loans to Sh 190 Billion.
According to the Central Bank, the growth in profits was mainly attributable to increased investment in government securities by commercial banks and increased lending rates.
The Central Bank says that as a result of increased lending rates,borrowers moved to other lending institutions particularly the micro-finance banks and saccos.
“Financial services sector recorded the highest increase in demand for credit with an increase of Sh34.2 billion attributed to increased lending by banks to microfinance banks and saccos to fund their activities within the quarter.” CBK.
The recently signed Banking (Amendment) Bill, 2015 intends to regulate interest rates that are applicable to banks’ loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits.
According to experts, Banks will resort to investing in government bonds rather than lending to customers who are more risky hence the reason for increased Bad debts.
According to Fitch Ratings, the immediate impact will be a sharp reduction in net interest margins for all banks. But large players, with stronger franchises and more diverse business models, should be able to attract new business and, with greater volumes, offset some of the squeeze on profitability.
