KCB defies harsh economy to post 48 percent rise in half year-profit

By AGENCIES

KENYA Commercial Bank (KCB) posted a 48 percent rise in its first half 2012 pretax profit, driven by growth of its loan book and was optimistic of a stronger performance for the year, the bank said yesterday.

KCB, Kenya's largest bank by assets, also operates in Tanzania, Rwanda, Uganda, South Sudan and Burundi.

It forecast good results this year after navigating through a period of high interest rates, which have since fallen after the central bank cut its key lending rate by 150 basis points to 16.5 percent in June.

The bank said it had seen growth in customer numbers and transactions, but also said it was concerned about a possible rise in loan defaults.

"Outlook is positive at the moment. We believe that we can deliver strong results in the second half of the year as well," Martin Oduor-Otieno, KCB chief executive, told reporters.

He said there was a possibility of the loan default rate rising for customers who took credit when interest rates were high, especially in the second half of 2011 when policymakers raised the CBR rate to a peak of 18 percent.

"To try and cushion ourselves against any deterioration in the performance of the loan book, we have taken up more provision in this half of the year," said Oduor-Otieno.

"There is always a chance that some of the loans that were delivered during the high interest regime would begin to default."

Analysts said they expected KCB's share price to rise on Friday, buoyed by the strong performance. The stock was suspended from trading at the bourse while the results were released.

"We already saw demand on the share before the results, and I think demand, from across the board, will pent up tomorrow," said Vimal Parmar, head of research at Kestrel Capital.

The shares closed at 24.25 shillings, unchanged from Wednesday's close. They are up 44 percent in the year to date. Its earnings per share rose to 2.05 shillings from 1.38 shillings.

The bank said drivers for future growth were its subsidiaries, improved cost to income ratio, mortgages as well as small and medium enterprises.

KCB said its cost to income ratio dropped to 56.4 percent from 62.8 percent a year ago, while operating expenses increased by 16 percent to 11.9 billion shillings.

The liquidity ratio rose to 34.9 percent from 20.7 percent last year, against a statutory requirement of 20 percent, while total assets grew by 25 percent to 349.28 billion shillings.