This archive report was first published on 9 September 2019.
Published on September 9, 2019, East Africa's commercial banks have faced a difficult six months, with earnings growth falling short of expectations.
According to unaudited financial statements, most lenders have reported single-digit profit growth, while others have turned to losses.
Analysts attribute the decline in earnings to a combination of factors, including increased loan loss provisions and difficulties in mobilizing long-term deposits to sustain lending businesses.
McKinsey & Company's 2018 report, 'Roaring to Life: Growth and Innovation in African Retail Banking,' highlighted the significance of customer deposits, estimating that they would contribute $11 billion to African banks' top line between 2017 and 2022.
However, analysts at AIB Capital warn that profit margins in East Africa's banking industry will be hurt as lenders increase provisions in compliance with the new International Financial Reporting Standard (IFRS 9), which demands higher provisioning for bad loans.
In Kenya, the three largest retail banks – KCB, Equity, and Co-operative – made a combined average growth in net earnings of 6% during the period, weighed down by slower growth in customer deposits, lower interest income on loans, and increased loan loss provisions.
Regional banks, such as Mkombozi Commercial Bank in Tanzania, have also reported mixed results, with some narrowing their net losses and others struggling to maintain profitability.
