Kenya Commercial Bank, east Africa’s largest lender by assets, reported a 10 per cent increase in profit before tax in 2016 to Ks29.1bn ($283m) despite turbulence in its home market triggered by a cap in interest rates and hyperinflation in South Sudan.
Joshua Oigara, group chief executive, said the situation in South Sudan, where the ongoing civil war drove average consumer price index inflation last year to 1,295 per cent, was so serious the bank was “considering an exit” from the market.
“I will give the current [UN] secretary-general some opportunity to see what will happen in the first half of this year,” he said. Any exit would be staggered over three years to give the bank an opportunity to reverse the decision if the situation improves.
KCB reported a Ks3.4bn loss in South Sudan because of the impact of the hyper-inflation.
Kenya’s interest rate cap law, which limited lending rates to 400 basis points above the central bank rate and deposit rates at no less than 70 per cent of the CBR, saw the industry’s average lending rate fall from 18 per cent to 13.8 per cent after it came into effect last September.
Mr Oigara described it as “a point of inflexion in the way we did business”.
“It changed the environment,” he said, with the biggest impact being on issuing new loans. “We’re no longer targeting double digit growth in lending. We have to look at the risks model we’re taking on our books and the lending margins.”
However, existing customers are not repaying their loans but rolling them over to take advantage of the lower rates, Mr Oigara said. He predicted loan growth of around 5 per cent in 2017.
Lawrence Kimathi, the chief financial officer, forecast the impact of the loan cap would shave about two percentage points off 2017’s profit before tax.
KCB said it would pay a dividend of Ks3 per share, its highest ever and a 50 per cent increase on the previous year. This was after total operating income grew 15 per cent to Ks69.45bn, driven mostly by a 20 per cent increase in net interest income to Ks47bn.
The bank’s total assets grew by 7 per cent in 2016 to Ks595bn.