KCB Group Reclaims Most Profitable Bank in East Africa With Sh16.5B First Quarter Profit

KCB Group surpassed Equity Group for the first time in four years with a 69 percent increase in net profit to Sh16.06 billion in the first quarter ending March 2024 due to more income and lower taxes.

The lender reported Wednesday that net profit rose from Sh9.5 billion, accounting for 43% of the full-year Sh37.46 billion recorded in December 2023.

KCB’s first-quarter net earnings were Sh16.06 billion, higher than Equity’s Sh15.4 billion. This is the first time KCB’s quarter-one net profit has surpassed that of Equity since 2020, when it was Sh6.26 billion versus Equity’s Sh5.82 billion.

“Despite a tough operating climate across the area, we experienced a good revenue performance in the business as we anchored prudent credit, liquidity, cost, and risk management,” said KCB Group CEO Paul Russo.

“Our deliberate investments in digital and payments capabilities and regional expansion continued to deliver impressive results.”

Interest revenue, mostly from lending, rose 40.8 percent to Sh31.06 billion as KCB’s loan book grew 9.6 percent to Sh1.09 trillion in the first quarter. Total operational income rose nearly a third to Sh48.5 billion as non-interest income from loan and advance fees and commissions rose 17.7% to Sh17.4 billion from Sh14.79 billion.

Net profit increased due to decreased taxes, coming in at Sh4.67 billion, or 22% of pre-tax earnings, compared to Sh6.77 billion, or 48.8%, for the previous quarter.

Lawrence Kimathi, chief finance officer at KCB Group, said investment in income-earning assets that don’t draw taxes, such as infrastructure bonds, caused the effective tax rate to decline. Government securities investment surged by roughly a third. The net profit of KCB Kenya, the group’s major subsidiary, rose 73.2 percent to Sh11.17 billion from Sh6.45 billion.

KCB wholly owns the National Bank of Kenya, which it plans to sell to Nigeria’s Access Bank. It tripled its net profit to Sh444.2 million from Sh101.1 million. Other subsidiaries contributed 17.9% to pre-tax profit, excluding KCB Bank Kenya, demonstrating the benefits of diversifying to Uganda, Tanzania, and the Democratic Republic of the Congo.

KCB Group’s operational expenses rose 18.8% to Sh27.33 billion in the period under review due to higher loan default provisioning, worker compensation, and other operating expenses. Income grew faster than operating expenses, improving the cost-to-income ratio to 43.3 percent from 51.2 percent.

The bank increased its loan loss provisions by 53.4% to Sh6.3 billion as the stock of loans with no interest or principal for three months rose to Sh205.3 billion from Sh176.5 billion. The non-performing loans ratio rose to 18.2% from 17.3% due to Kenyan downgrades and the translation of the foreign currency-denominated loan book, according to KCB. The cost of staff grew to Sh9.65 billion from Sh9.36 billion, while other operational expenses rose 13.5% to Sh8.4 billion.

KCB Group’s balance sheet rose to Sh1.996 trillion from Sh1.63 trillion, approaching Sh2 trillion, while deposits rose to Sh1.5 trillion from Sh1.19 trillion, mostly from Kenya.

“Compared to last year, we are optimistic about business prospects in the remaining part of the year. By achieving excellent financial performance and pursuing our future-proof business agenda, we have made substantial progress towards sustaining outstanding shareholder value, said KCB Group chair Joseph Kinyua.