Bank earnings dip to lowest levels since January owing to interest rates cap.

The move to cap interest rates on loans has reduced bank profits before tax for the month of October. According to the economic indicators update prepared by the Central Bank of Kenya (CBK) for October, Sh9.3 billion was the lowest earning since January. Profitability declined for the fourth straight month since the year  high  Sh15.6 billion in June.

Month-on-month, the gross profit posted in October was down by 14.7 per cent compared to Sh10.9 billion posted in September. However, when compared cumulatively to October last year, it rose by 6.5 per cent. In a note on the performance, Standard Investment Bank (SIB) analysts predicts lower profits for banks. “October was the first full month the sector operated under the new interest capping law. In our view, the decline in profit before tax points to weak future earnings on the back of declined net interest earnings,” noted SIB.

Though most banks are targeting volume growth on loans to help compensate for the loss in net interest income, SIB analysts said they were not confident that high volume growth would be achieved. CBK data showed that the loan book remained subdued for most parts of the year, rising by just 2.2 per cent year-on-year to Sh2.29 trillion cumulatively. Cheap credit is yet to excite borrowers. SIB analysts indicated that in October, gross loans grew by just one per cent as the loan book deteriorated.

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