The April 2021 Banking Sector Development Report indicates that banks growth in profit-after-tax slowed to 5.9% in the first two months, from 38.8% recorded during the same period last year.
This is as a result of a decline in growth of interest income.
According to the report, interest income growth declined to 9.5% in February 2021, from 22.0% in February 2020 due to the relatively low growth in credits.
Consequently, net fees and commissions growth of 13.7% was lower than the 18.4% recorded in the previous year. Slower growth in credits, trade-financing and other off-balance sheet transactions contributed to the decline in growth of fees and commissions during the review period.
Also, cost control measures continue to impact positively on the sector with operational costs declining marginally by 0.3%, as against a growth of 18.6% over the same period in 2020. The marginal gain in operating cost was however offset by higher loan provisions.
Total provisions however increased by 62.2% in February 2021, compared to 6.5% in February 2020, due to the rising Non Performing Loans, partly from the general pandemic-induced repayment challenges as well as some banks’ specific loan recovery challenge.
Return on Assets and Return on Equity
These two important indicators to shareholders also took a nose dive but not alarming.
Return on Equity (ROE) declined from 25.1% to 22.1%, while Return on Assets (ROA) dipped from 4.9% to 4.4% over the same comparative period.
Composition of Banks’ Income
The composition of banks’ income in February 2021 reflected the structure of the balance sheet, the report emphasized.
In line with the increase in banks’ investment holdings, interest income from investments remained the largest source of banks’ income, with its share increasing to 51.1% in February 2021, from 42.5% in the previous year.
Interest income from loans was the second largest source of banks’ income but its share declined to 31.1 % from 38.7 percent, reflecting the slowdown in credit growth.
The share of fees and commissions however increased marginally to 12.3% from 11.7% over the same comparative period, while the share of other income sources declined to 5.5% from 7.2%.
