The Central Bank of Kenya (CBK) has revealed that Kenya’s banking sector remains resilient amidst the COVID-19 turmoil despite registering a decline in its pre-tax profits.
The CBK says banks’ pre-tax profits declined by 29.5 percent to record Ksh.112.1 billion for the year ended December 2020.
Aa well as Ksh.96.4 billion in the first half of 2021 in its latest report.
The decline is attributed to the high level of bad debts that led to increased total expenses.
The expenses increased by 32.1 percent to Ksh.318.2 billion in December last year.
On the other hand, the bank’s return on assets and equity declined to 2.1 percent and 13.9 percent in December 2020, respectively.
However, the regulator is optimistic that the sector will continue to grow in 2021 by prospects of containing the COVID-19 pandemic and the rollout of vaccines.
The risk exposure level to the fund increased from 59.7 percent in December 2019 to 81.9 percent in December 2020 for the sector’s safety.
Further, CBK’s report coincides with that of the Kenya Bankers Association (KBA), which indicates that the overall profitability and contributions to the national budget by banks declined to a nine-year low in 2020 after COVID-19 ravaged trade, manufacturing, and agriculture sectors where banks have restructured a majority of assets.
KBA’s state of the banking industry report 2021 shows that banks’ profits before tax dropped by 30.9 percent, the lowest level since 2012.
The report attributes the decline to a depressed economic performance and quality of assets held by banks.
Additionally, the Kenya Deposit Insurance Corporation (KDIC) implemented a risk-based premium at the inset of the current fiscal year to reward members proactively investing in and implementing effective risk management frameworks.
Flight to safety concerns are also emerging as banks and customers seek safe assets with positive returns.
And the preservation of value.
At the height of the COVID–19 pandemic, banks invested heavily in long–term Treasury bonds for safety and quality.