ThinkBusiness Banking Survey: Banking Sector Delivers Robust 2011 Performance
Tuesday, 09 October 2012
The Kenyan banking sector continued riding the crest of profitability in 2011 despite the challenging economic setbacks that rocked both the local and global economies. Available statistics reveal that the sector witnessed a steady rise in earnings and a more robust expansion of the balance sheet. Indeed, players in the sector hit record highs in profit margins, not to mention network expansion registered, as banks angled for a bigger pie in the increasingly competitive environment.

Data from the Central Bank of Kenya (CBK) show that the banking industry’s total net assets surged by 20.4% to hit KES2.02trn in December 2011, up from KES1.68trn posted during the same month in 2010.

Indeed, the sector managed to shed the bulk of non-performing loans that have for years featured prominently in banks’ books of account. During the year, the non-performing loans shrunk by 8% from KES57.6bn to KES53.0bn in December 2011.

Key macro-economic challenges that rocked the sector ranged from sharply rising inflation levels and volatile interest and exchange rate regimes. The inflation rally was largely fuelled by a steady surge in food and fuel prices. For instance, inflation hit a high of 18.9% in December from a low of 3.97% in March 2010.

The exchange rate volatility followed the depreciation of the Kenya shilling against most of world-traded currencies attributed to the euro sovereign debt crisis that led to increased demand for US dollars and a widening current account deficit.

These factors drove the Monetary Policy Committee (MPC) of the CBK to adopt a tight monetary stance to tame their effects on the economy, key among them being mitigating the impact of the sharp increase in interest rates on borrowers, while at the same time ensuring the stability of the banking sector.

Due to increased competition in the sector and the ongoing efforts towards regional integration, a number of Kenyan banks extended their footprint across the neighboring East African countries.

In 2011, two additional foreign financial institutions, HSBC and First Rand Bank of South Africa. entered the Kenyan market by establishing representative offices.

These developments support Kenya’s aspiration to be a premier financial services hub in line with Vision 2030. The expansion by Kenyan banks into the regional market and the now seemingly growing interest from global financial institutions attest to this.

Going forward, CBK Governor Prof Njuguna Ndungu says the CBK will continue partnering with the government and the banking fraternity to reduce the cost of banking services in the country and deepen the penetration of banking products and services-a key economic pillar towards the realisation of Vision 2030. ‘This partnership will lower the cost of banking, thus encouraging more Kenyans to save and borrow for productive investment,’ says Prof Ndungu.

CBK intends to promote increased transparency and disclosure by banks and deposit-taking microfinance institutions (DTMFI) to protect consumers and increase competition.

2011 Data
Overall, 2011 was a good year for the banking sector in Kenya. There was increased lending to various sectors to drive economic growth. The sector was resilient and had a robust performance. This was the key driver for profitability.

This growth was evident, and was supported by the following indicators:-



  • Total assets increased by 20% from KES1.6 8trn to KES2.02trn, driven by the increase in loans and advances.
  • Customer deposits grew by 20.2% from KES1.24trn to KES1.49trn in December 2011. The growth was attributed to increased deposit mobilisation by banks as they expanded their outreach and opened new branches. The use of agents also contributed to better mobilisation of deposits.
  • The pre-tax profit grew by 20.5% to KES89.5bn from KES74.3bn as a result of income generated by increased loans and advances and fees from innovative products rolled out by banks.
  • Gross loans surged by 30.2% from KES914.9bn to KES1.191bn as at December 2011. The growth in loans is attributed to increased demand for credit by various sectors of the economy.
  • The number of bank branches increased by 98 from 1,063 in 2010 to 1,161 branches in 2011, indicating increased access to banking products and services.
Structure of the Banking Sector (31 December 2011)
The banking sector comprised of the Central Bank of Kenya (CBK), as the regulatory authority, and the following financial institutions:
  • 44 banking institutions: 43 commercial banks and one mortgage finance company - MFC) and four representative offices of foreign banks.
  • Six deposit-taking microfinance institutions (DTMs).
  • 118 forex bureaus and two credit reference bureaus (CRBs).
And despite the jitters occasioned by the forthcoming general election in Kenya, industry players are bullish of a robust performance in 2012 and the sector is expected to maintain its growth momentum.

Industry pundits contend that the momentum will be underpinned by the increased regional presence of Kenyan banks and the adoption of cost effective methods of offering financial services.

The optimism for a sustained profit momentum is supported by available data from CBK that show that the sector’s profitability in the first half of 2012 is on a growth trajectory.

The statistics show that the banking sector earned KES28.5bn in profit before tax for the quarter ended June 2012. This was a 15.4% increase from the KES24.7bn as at March 2012. However, total income stood at KES88.0bn in the second quarter, a marginal decline of 0.5% from KES88.4bn registered in the first quarter of 2012.

Overall, the profitability of the sector increased by 30.4% to KES53.2bn from the KES40.8bn registered in June 2011.

The sector was highly liquid during the half year ended June 2012. Average liquid assets amounted to KES599.0bn, while total liquid liabilities stood at KES1,571.1bn, resulting in an average liquidity ratio of 38.1%, against 37.3% registered in March 2012, and above the minimum statutory limit of 20%.

In its recent brief, CBK contends that the sector is expected to sustain its growth momentum on the backdrop of declining inflation, stabilisation of the Kenya shilling and downward revision of lending rates.

KCB Group Chief Executive Dr Martin Oduor-Otieno concurs with CBK that exchange rate volatility and inflation are currently the two worst threats to macro-economic stability.

To order copies of the banking survey, please contact Winnie on 4453881/0726708233 or email her at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it     

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