Kenya bank profits drop first time in 16 years on costs

Kenya’s banking industry last year recorded the first decline in profit since 1999 as costs outpaced income in the wake of two failures and more onerous regulations.

Pretax profit across the sector declined 5 percent to 134 billion shillings ($1.3 billion) in the 12 months through December, according to the central bank’s Bank Supervision Report, released in the capital, Nairobi, on Tuesday. That came as a 16 percent increase in expenses more than negated a 9.2 percent rise in assets during the period.

“The Kenyan banking sector is expected to register an enhanced performance in 2016,” the regulator said, boosted by the growth outlook for the country’s economy and improved integration with other East African nations. “Following the challenges witnessed in the banking sector towards the end of 2015, 2016 will be a transition year to seize on the lessons and challenges.”

Regulators in August seized Dubai Bank Kenya Ltd. after it breached minimum capital requirements and two months later placed Imperial Bank Ltd. into receivership amid claims of fraud that company executives deny. The top seven lenders in Kenya control almost half of the market, and own more than 70 percent of all the industry’s assets, according to the report.

Assets held by subsidiaries of Kenyan banks in South Sudan, among them KCB Group Ltd., Equity Group Holdings Ltd., CFC Stanbic Holdings Ltd. and Co-operative Bank of Kenya Ltd., declined by 50 percent during the year to 58.8 billion shillings following the devaluation of the South Sudanese pound, the regulator said.

Overall credit rose by 11.6 percent to 2.2 trillion shillings in 2015 from a year earlier, while non-performing loans increased to 6.8 percent, from 5.6 percent in 2014.

While capital adequacy declined by 120 basis points to 18.8 percent, it remained above the 14.5 percent threshold.