BANK, MOBILE TRANSACTION CHARGES INCREASES FURTHER

Tier-one lenders cut their dependence on the interest income from lending last year after higher fee revenue from mobile transactions and foreign exchange trading boosted the share of non-funded to 38 percent of total income from 34.4 percent in 2021.

The nine lenders reported a 33 percent rise in non-interest income to Sh225.4 billion in 2022 from Sh164.6 billion received the year before.

The contribution of net interest income to total income meanwhile fell to 62 percent in the year ended December 2022 from 65.6 per cent in 2021.

Net interest income for the enders stood at Sh367.6 billion last year, representing a 17.3 percent increase from Sh313.4 billion in 2021.

Foreign exchange income rose by at least 30 percent across the banks, with I&M Holdings leading followed by NCBA, on the back of a weakening shilling against the dollar.

Aside from forex and account-mobile wallet transfer fees, the non-interest income is also drawn from account maintenance charges, loan processing fees, transaction fees, insufficient funds fees, and inactivity levies, among others.

“The main factor is the foreign exchange income, which boosted the non-funded income (NFI) or non-interest income because the mobile charges were reintroduced this year. Fees and commission fell last year,” said Michael Odundo, a research associate at Standard Investment Bank.

The Business Daily analysis showed the contribution of NFI to total income for banks is rallying towards pre-pandemic levels—having stood at 41.8 percent in 2019.

This year, however, interest income is likely to grow at a faster pace compared to last year due to the continued approval of risk-based pricing plans that will allow lenders to price in risk in determining the interest to be charged on customer loans.

Interest rates have also gone up generally in line with the tightening of monetary policy by the Central Bank of Kenya (CBK) in reaction to higher inflation.

By the end of February, the average lending rate stood at 13.06 percent, up from 12.1 percent a year earlier.

Between March 2022 and March this year, the CBK has raised its base lending rate from seven percent to 9.5 percent, forcing banks to adjust their interest rates upwards to account for the resulting higher cost of money.

Banks taking up new bonds floated by the government also stand to earn more in interest due to rising yields on government securities.

The yield curve has gone up significantly over the past year, with the latest five-year bond now rating at about 13.2 percent compared to about 12 percent in June 2022.

On the Treasury bills market, rates have now risen to between 10 and 10.9 percent across the three tenors, from a range of 7.4 to 9.7 percent a year ago.

By Business Daily