Oral East AfricaBankers are set to announce half-year results this August, which may reflect a fragile recovery, with profitability stabilized by lower provisions and selective sector growth. Interest margins have been compressed and slow transmission of interest rate cuts will cap upside.
Analysts will also be watching the CBK August MPC meeting to see if there will be further policy measures to improve liquidity in the market.
Despite Central Bank of Kenya Governor Dr Kamau Thuge cutting CBR to a single digit last seen two years ago, credit recovery is struggling with banks making modest reductions in their own lending rates to around 16.4 percent.
Private sector credit growth went negative at the end of last year, contracting by -1.4 percent YoY in December 2024—the worst performance since 2002—due to high borrowing costs and shilling appreciation reducing foreign-currency loan valuations.
The dollar challenges also took away the lucrative forex trading that had lined up banks non-interest incomes while wider provisioning to counter the rise in non-performing loans is eating away at margins.
While a few commercial banks have been making super profits off Kenya’s government paper to cover shortfalls from external borrowing, elevated fiscal gaps at the national government and counties borrowing from commercial banks to pay salaries as they await disbursements from treasury, this business may come undone, if Kenya gets into debt troubles.
Pending Bills of pending bills
The government is in default of local suppliers and has piled up Kes663 billion in pending bills and is only avoiding legal censure from a bureaucratic verification process to buy time.
This has resulted in industry wide defaults that hit Kes672 billion, a figure that mirrors the state defaults on local businesses. This is in turn making lenders risk averse in a bid to maintain asset quality and prevent descent into defaults.
However if the credit contraction remains persistent, it could trigger credit rating downgrades, raising Eurobond refinancing costs.
Firing season
The August earnings will also be a key labour market indicator in the banking sector as lenders move to contain costs to compensate for the lower earnings.
Equity Bank Group has already set the industry trend culing 1,200 staff in an internal fraud purge that also served to deliver a cost-effective attrition. The rest of the lenders face the PR headache of the necessary staff cuts in an industry that shows strength through growth.
Discover more from Orals East Africa
Subscribe to get the latest posts sent to your email.
