| Kshs 000's | Q3 2009 | Q3 2010 | Q2 2011 | Q3 2011 | |||
| Total assets | 184,710,762 | 244,207,198 | 279,715,061 | 322,462,058 | |||
| Net loans and advances | 114,274,487 | 137,893,928 | 175,204,072 | 193,888,733 | |||
| Customer deposits | 150,937,565 | 193,137,485 | 215,737,886 | 252,388,364 | |||
| Loan: deposit ratio | 76% | 71% | 81% | 77% | |||
| Total interest income | 13,278,679 | 17,476,722 | 11,779,740 | 19,013,054 | |||
| Total interest expense | 2,367,078 | 2,855,783 | 1,247,214 | 2,408,636 | |||
| Net interest income | 10,911,601 | 14,620,939 | 10,532,526 | 16,604,418 | |||
| Total operating income | 17,420,419 | 21,896,421 | 16,873,301 | 26,887,298 | |||
| Total operating expense | 12,145,367 | 15,383,835 | 11,134,483 | 17,776,867 | |||
| Cost: income ratio | 70% | 70% | 66% | 66% | |||
| Profit before tax | 5,275,052 | 6,512,586 | 5,738,818 | 9,110,431 | |||
| Profit after tax | 3,501,853 | 4,495,786 | 4,067,716 | 6,432,988 | |||
| Earnings per share | 1.58 | 2.52 | 2.75 | 2.91 | |||
| Return on assets | 1.9% | 1.8% | 1.5% | 2.0% | |||
| | |||||||
Change from prior period | Q3 2010 | Q3 2011 (1) | Q3 2011 (2)* | |||||
Total assets | 32% | 15% | 32% | |||||
Net loans and advances | 21% | 11% | 41% | |||||
Customer deposits | 28% | 17% | 31% | |||||
Loan to deposit ratio | -5% | -4% | 6% | |||||
Total interest income | 32% | 61% | 9% | |||||
Total interest expense | 21% | 93% | -16% | |||||
Net interest income | 34% | 58% | 14% | |||||
Total operating income | 26% | 59% | 23% | |||||
Total operating expense | 27% | 60% | 16% | |||||
Cost to income ratio | - | - | -4% | |||||
Profit before tax | 23% | 59% | 40% | |||||
Profit after tax | 28% | 58% | 43% | |||||
Earnings per share | 59% | 6% | 15% | |||||
Return on assets | -0.1% | 0.5% | 0.2% | |||||
*The column titled Q3 2011 (1) shows the change from the results of Q2 2011 to Q3 2011, while Q3 2011 (2) gives the change between Q3 2010 to Q3 2011.
Analysis:
Kenya Commercial Bank’s recorded an increase in PAT of 43% above the previous year’s Q3 figure. Net interest income and total operating income rose by 14% and 23% respectively. Notably, there was a 93% increase in the total interest expense from the previous quarter, though the figure of 2.4B is still 16% less than the previous year’s 3rd quarter interest expense amount of 2.9B.
The bank’s total assets grew by 32% of the figure in Q3 2010 and by 15% of the value in the previous quarter. Net loans and advances also rose by 41% while customer deposits went up by 31%, possibly due to the success of the bank’s Transformation Programme, which has managed to improve its lending and deposit, retail and mortgage finance business segments. The bank’s return on assets rose marginally to 2% compared to Q3 2010’s 1.8%.
The cost to income ratio is 4 percentage points lower in Q3 2011 due to a slower rate of growth in operating expenses than the previous year.
The annualized earnings per share were Kshs. 2.91 for the quarter, indicative of the bank’s increased revenues. This gives a P/E ratio of 5.07 based on share prices at the close of trading on 31 October 2011.
There has been improvement in the bank’s financial performance across the board, though the increase in earnings per share was not as substantial as it was in 2010.
Outlook:
Banks in Kenya have had to operate under high inflation, which has significantly reduced borrowing in the Kenyan economy. Another factor that has precipitated the worsening of the economy is the volatility in the foreign exchange market over the past few months. The local currency has fallen significantly against foreign currencies and the fluctuations have only made the level of inflation rise further. In a bid to curb the rising inflation, the Central Bank has been increasing its lending rate to banks in a bid to reduce the cash supply. To counter this, most banks have opted to increase their minimum interest rates on loans. On 1 November 2011, the Monetary Policy Committee set the Central Bank Rate at 16.5% and Cash Reserve Ratio at 5.25%, though the new CRR will only take effect from 15 December 2011 to allow banks time to adjust.
KCB has followed this trend in the banking sector by raising its interest rates to 19% on loans. This is aimed at cushioning themselves against the Central Bank’s directives on lending, and perhaps increasing its interest income in the long run. However, this move has compelled a lot of the bank’s clients to avoid taking loans. A lot of the interest income in the period is drawn from existing loans which now attract higher interest charges. KCB’s CEO Dr. Martin Oduor-Otieno attributed their current rates to market dynamics.
In light of current market conditions, KCB has decided to exploit its merger with S&L to generate more revenue. It is now possible to buy mortgages at all of KCB’s branches. With a branch network of 222 outlets spanning 5 countries, this provides a much greater reach than S&L would otherwise have had. The bank also introduced KCB Connect, a mobile banking service that allows its customers to utilize the M-Pesa platform offered by mobile service provider Safaricom. This, coupled with the services offered by KCB Agents is expected generate a lot of revenue from the anticipated increase in transactions.
