Kenya’s financial sector earnings are expected to rise in 2022 on a projected 6 per cent economic growth run and improving bad loan portfolios, analysts have said.

With National Treasury and Central Bank of Kenya (CBK) estimating that the economy may grow by up to 6.1 per cent this year, the import is that there will be more business activities and transactions compared to last year.

“We saw that the economy grew by 10 per cent in the second quarter of last year, even though the growth was coming from a low base, it’s an indication that the recovery is gathering speed,” said Robert Karuiyi of Cytonn Investments.

National Treasury Cabinet Secretary Ukur Yatani said Kenya’s real gross domestic product (GDP) grew 9.9 per cent in the third quarter of 2021 on easing of Covid-19 containment measures.

“Economic recovery from the effects of Covid-19 pandemic continued in the third quarter of 2021 as a result of easing of containment measures,” he said while making the announcement on new year’s eve.

Inflation which CBK uses to adjust interest rates is also within the target range of 7.5 per cent, meaning that the regulator is less likely to lift the cost of borrowing.

The ratio of bad loans compared to the overall banking sector loan book improved in the last four months signalling that banks are reducing the risk of defaults.

A recent report by Cytonn Investments shows that the asset quality of commercial banks improved to 12 per cent compared to 13 per cent at the end of the first half of the year.

This ratio has been improving every month. “As a result banks have started cutting provisions for bad loans, which gives them more liquidity and consequently more profitability,” it said. 

Market environment

The provision for bad loans dropped by 32 per cent in the third quarter compared to an increase of 300 per cent last year due to the pandemic.

However, factors such as the coming elections and emerging Covid-19 variants could make banks more cautious in lending as risks are normally elevated in any election.

For instance, the Omicron variant has pushed Covid-19 positivity rate to over 30 per cent and this could be a key determinant of the market environment next year.

The suspension of CRB listing for people with loans under Sh5 million could also increase opaqueness among the banking sector, making bankers lend less money as they do not have full information on their customers. 

“The consumer has been through a rollercoaster time, job losses, inflation, you are entering a year where the customer has suffered a number of hits,” said economist and businessman Robert Shaw. 

“It is going to be a long bruising election, and that is going to hit the economy. This will affect the bank customer as the economy will be overshadowed by the elections.”