[2008-08-18]  NIC Bank maintains earnings tempo
NIC Bank maintained the strong half year earnings tempo for Kenyan banks, propped up by foreign exchange and fees and commissions income, even as interest earnings showed signs of strain within the same period.

NIC Bank reported half-year pre-tax profits of Sh650 million, a growth of 38 per cent, compared to Sh470 million for the same period last year. Total operating income grew by 26 per cent marking an increase of Sh293m while non-funded income increased by more than 44 per cent (or Sh155m).

Cashing in on the volatile currency movements that pervaded the first half of the year, the bank registered increased foreign currency trading to mark an 80 per cent rise pushing forex earnings to Sh193 million by June this year.

But as forex trading raised the profile of non-funded income as a proportion of total income, the contribution of earnings from interest to total income shrunk by four per cent to stand at 64 per cent in June this year compared to 68 per cent within the same period last year.

The drop in the net interest margin has placed the highest risk to earnings for an industry that has posted record profits for five consecutive years, forcing banks to seek alternative ways to nurture incomes.

“If you were to take the growth in non-funded income as a gauge of the level of our customers’ satisfaction with our services and product offering, a 44 percent year on year growth in non-funded income is truly impressive,” said NIC Bank managing director James Macharia.

The Bank’s loan book recorded a 39 per cent growth of Sh18.4 billion to Sh25.7 billion by June 2008. To fund this growth in advances, the Bank’s deposit base as at June 2008 stood at Sh30.2 billion, reflecting a 31per cent increase over that reported in June 2007.

Operating expenses outside provisions for loan losses grew by a modest Sh70 million or (12 per cent) in spite of the high inflation and a year on year balance sheet expansion of 36 percent [an increase of Sh10 billion].

Data from Central Bank of Kenya (CBK) show that the interest rate margin — gap between deposit and lending rates — has halved from 20 per cent to 10 per cent over the last five years subdued by the steady drop in lending margins.

Over the last five years, lending rates have generally dropped from between 25-30 per cent to between 14 and 20 per cent, while deposit margins have risen marginally from an average of four per cent to five per cent as competition for deposits heats up.

While there is greater uncertainty on sustaining stable interest rates, economists say there are no pressing grounds for concern.

“Despite the challenging market environment that was exacerbated by political crisis early this year, the bank reported satisfactory performance on all the key financial indicators,” said Mr Macharia.

The bank’s board declared an interim dividend of Sh0.25 for every ordinary share of Sh.5 each to all members in the register at close of business on last September.
Source: Business Daily