The banking sector registered a robust performance in 2016 with gross loans increasing from KSh2.17 trillion in December 2015 to KSh2.29 trillion in December 2016, according to the Central Bank of Kenya Annual Supervisory Report.
The growth in loans is attributed to increased demand for credit by the various economic sectors. According to the Banking Supervisory Department Director Gerald Nyaoma, some of the economic sectors that received the highest growth in demand for credit in 2016 were Personal/Household, Trade, Real Estate and Manufacturing.
He says customer deposits increased by 5.3% from Ksh2.49 trillion in December 2015 to KSh2.62 trillion in December 2016. The growth was also supported by mobilisation of deposits through agency banking and mobile phone platforms.
Pre-tax profit for the sector increased by 10.91 percent from KSh134.0 billion in December 2015 to KSh147.4 billion in December 2016.
“The increase in profitability was attributed to a higher increase in income compared to the rise in expenses. The banks income increased by 5.7 percent in 2016 whereas expenses increased by 3.8 percent over the same period,” Nyaoma says.
The banks income increased by 5.7% in 2016 whereas expenses increased by 3.8% over the same period. The average liquidity ratio as at December 2016 stood at 40.3%t as compared to 38.1% registered in December 2015.
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The increase in the ratio is mainly attributed to a higher growth in total liquid assets compared to the growth in total short-term liabilities. Total liquid assets grew by 12.1% while total short-term liabilities grew by 5.7 %.
The banking sector’s average liquidity in the 12 months to December 2016 was above the statutory minimum requirement of 20%. The ratio of gross non-performing loans to gross loans increased from 6.8% in December 2015 to 9.2% in December 2016.
According to Nyaoma, the increase in non-performing loans in 2016 was mainly attributable to a challenging business environment.
The Central Bank Prudential Guideline on Capital Adequacy requires banks to adhere to the prescribed capital adequacy prudential ratios. The minimum regulatory capital adequacy ratios, that are measured by the ratio of Core Capital and Total Capital to Total Risk Weighted Assets, are 10.5% and 14.5% respectively.
He adds the sector is projected to remain stable and sustain its growth momentum in 2017 as the outcomes of various reforms and initiatives in the banking sector start to manifest. Some of the reforms and initiatives planned include enhancement of transparency in cost of credit through introduction of disclosure models, strengthening of the credit information sharing mechanisms, review of the legal and supervisory framework for Islamic Banking and enhancement of AML/CFT risk assessment by banks.
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CBK Governor Patrick Njoroge says the sector demonstrated continued resilience both in its domestic and regional operations last year, with the industry’s total asset base growing by approximately 5.8 percent to KSh3.7 trillion from KSh3.5 trillion in 2015.
“The sector’s equity base also grew by 10.5 percent to KSh598 billion in 2016 from KSh541 billion in 2015. This performance was registered against significant macro-economic challenges in the domestic and international environment, with Kenya’s GDP growing at 5.8 percent in 2016. Domestically, enhanced activity was recorded in the housing, Information Communication and Technology (ICT) and tourism sectors. The construction sector also recorded growth, driven largely by continued public sector investments,” he notes in the report.
Dr Njoroge notes that in 2016, CBK moved towards a ‘new normal’ in its supervisory approach, one based on three pillars: transparency, governance and effective business models.
“Towards this objective, CBK worked with the banking industry to enhance and clarify regulatory guidance on key areas including enhanced disclosure, improvement of asset quality, governance and integrity of ICT systems. To strengthen the capital adequacy assessment,” he says.
