Banking

Banking (Amendment) Act, 2016, cost British lender’s net earnings by 35 per cent

Loans and advances to customers declined by eight per cent to stand at KShs 113 billion compared to KShs 123 billion at the close of 2016 .

Lenders in Kenya have blamed the tough business environment in the country as a reason to why business has been low. Under the interest cap law, businesses have been on the back foot including eating Standard Chartered bank’s net earnings for the six months to June which dropped by 35 per cent.

The British lender’s posted an after tax profit of Ksh3.4 billion as at June 2017 compared to Ksh5.2 billion made in a similar period last year.

The bank’s net interest income declined by eight per cent to KShs 9.2 billion down from KShs 10.0 billion during a similar period last year.

The poor performance has been pegged on the effects of the Banking (Amendment) Act, 2016, which capped lending rates and introduced a floor on deposit rates, slowdown in economic activity in the run up to the general elections and an increase in the non-performing loan book.

The bank has reported a 12 per cent fall on interest income on customer loans and advances which closed at KShs 6.9 billion, due to margin compression and lower average balance of loans and advances.

The decline was partially mitigated by higher interest income from government securities, according to the management.

“Though we entered 2017 with cautious optimism, pressure occasioned by external challenges particularly the Banking (Amendment) Act, 2016, is reflected in the performance as we continue to witness deceleration in credit growth. While overall credit quality has remained broadly stable, stresses remain in some areas, “chief executive Lamin Manjang said in a statement,” We remain watchful for signs of deterioration in credit conditions in the market and proactive in our collection efforts to minimise account delinquencies.

The lender’s interest expense increased by 16 per cent from KShs 3.0 billion in the first quarter of last year to KShs 3.6 billion, as a result of higher deposit balances coupled with higher interest paid in line with the new regulation.

Loans and advances to customers declined by eight per cent to stand at KShs 113 billion compared to KShs 123 billion at the close of 2016 .

Customer deposits increased by 20 per cent to close at  KShs 224 billion, up from KShs 187 billion at the end of 2016.

Non-interest income decreased five per cent year-on-year to KShs 4.3 billion primarily due to lower foreign exchange volumes.

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