As banks face pressure to lower interest rates to speed up economic recovery, the focus is shifting towards cost containment and increasing incomes from other sources.
Absa Banks’ 328.2 percent jump in net profit to Kes8.2 billion in the nine months ended September from Kes1.9 billion third quarter last year underlines this strategy.
The bank says it has been charging lower interest rates and has had to turn to creative ways of making money while supporting customers.
The bank whose loan price has dropped from 11.8 percent in December 2018 to 9.6 percent in September 2021 said it has been able to grow revenue 7 percent with growth in both net interest income and non-funded despite thinning margins as well as COVID-19 impact on fees and volumes.
Non-interest income from fees and commissions, forex trading, and other income increased to Kes8.7 billion from Kes8.3 billion while interest income grew to Kes23.5 billion from Kes23.2 billion.
“As a responsible financial partner, we have been repricing the book and passing on the benefits to our customers,” said Absa Bank Kenya Chief Executive Officer Jeremy Awori.
The lender cutting cost was key. The bank has been able to cut cost to income ratio, loan loss rate, and cost of funds by improving the quality of borrowers and diversifying deposits.
The bank saw a three percent decline in operational costs to Kes12 billion from Kes12.5 billion while the lender was no longer required to meet Kes1.9 billion rebranding costs experienced last year.
Absa spent heavily in rebranding and technology change as part of its separation from its former London-based parent company, Barclays Plc.
Quality loans saw a lower expectation of default which also cut loan loss provisioning 55 percent to Kes3.4 billion from Kes7.5 billion.
The lender says its balance sheet is strong enough to enable it to pursue growth and the resumption of dividend payments.
Banks are under increasing social pressure to help sustain the economic recovery by helping keep the cost of loans low and providing access to small businesses.
According to the Kenya National Bureau of Statistics, the country’s economy expanded 10.1 percent in the second quarter of the year on the back of a rebound in economic activity compared with a similar period last year when tough Covid-19 containment measures led to a 4.7 percent contraction.
The growth recorded was mainly as a result of easing Covid-19 containment measures that facilitated the gradual resumption of economic activities.
Banks hope this will reduce default rates and stimulate demand for loans uplifting interest incomes while helping contain expenditure.