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The impact of the Covid-19 pandemic on the banking sector continues to dissipate as the economy recovers and financial position of borrowers improve.

Central Bank of Kenya (CBK) data shows total income for the banking sector increased by 9.3 per cent from Sh576.4 billion in 2020 to Sh630.2 billion in 2021.

The sector regulator attributes the performance to growth in credit and increased earnings from government securities and foreign exchange trading.

“The increase in income was largely attributed to increase in interest on government securities which jumped by 17.1 per cent to Sh174.7 billion in 2021 from Sh149.2 billion in 2020,” said CBK in its latest annual banking sector report.

Also supporting the growth, according to the report was a jump in credit portfolio, commissions and earnings from foreign exchange trading.

Recovery from pandemic shocks saw commercial banks book Sh197 billion in pre-tax profits last year, in a 75 per cent recovery from pandemic shocks, from Sh112.1 billion in December 2020.

Loans and advances

Total net assets grew by 11.4 per cent from Sh5.4 trillion in December 2020 to Sh6 trillion in December 2021, with the growth being supported by the increase in loans and advances.

Customer deposits also increased from Sh4 trillion in December 2020 to Sh4.5 trillion in December 2021 due to increased deposit mobilisation through agency banking and mobile phone platforms.

“Banks positioned themselves for recovery through inter-alia the review of their business models, digital acceleration, review of their delivery channels, sourcing for long-term funding and exploring equity injections and mergers/ acquisitions, said CBK governor Patrick Njoroge.

The liquidity ratio stood at 56.2 per cent as at December 2021, higher than the liquidity ratio in December 2020 of 54.5 per cent. Ratio of non-performing loans declined from 14.5 per cent in December 2020, to 14.1 per cent in December 2021. The marginal decline was mainly attributable to recovery efforts by banks as well as the country experiencing recovery from the Covid-19 pandemic.

Njoroge said that banks must put customers and not profits at the centre of their strategy going forward.

“The customer must remain at the heart of the bank’s strategies and operations. Agility will be imperative as banks respond to rapidly changing customer needs and preferences. More broadly, banks must remain cognizant of societal needs and concerns,” he said.

In particular, efforts towards greening the financial sector, Njoroge added, should be accelerated to secure the planet’s sustainability.

The one-year emergency measures on extension and restructuring of loans announced by CBK in 2020, ended on March 31, 2021.

Thereafter, the standard procedures for loan classification and provisions were applied. At the end of the period, loans amounting to Sh1.7 trillion or 54.8 per cent of total banking sector loans had been restructured. 

Consequently, borrowers whose loans were performing before the measures were instituted, but were restructured and subsequently went into arrears, were given a three-month grace period June 2021, to regularise their loans.

As at the end of December 2021, the outstanding restructured loans amounted to Sh423.6 billion or 13 per cent of total banking sector loans. Of this amount 92.3 per cent of the outstanding restructured loans were performing, while 7.7 per cent were non performing. 

Relief to borrowers

“The measures provided the intended relief to borrowers, supported continued operations of businesses, and strengthened the resilience of banks,” the bank said. Although banks are expected to post impressive results for the year ended December 31, analysts fear that the upcoming general election will impend the growth going forward. 

Latest outlook by Renaissance Capital shows that there is a likelihood of a slowdown in economic activity in the year to June 30, with muted lending activity in the first half of the year.

The move comes as lenders adopt a wait-and-see approach in the run-up to the August 9 General-Election.