KCB announces Sh26.5b pretax profit

Kenya’s KCB, the country’s biggest bank by assets, announced a scrip dividend on Wednesday and said it would issue debt to raise capital this year after volatility in lending rates crimped profit growth in 2015.

The bank, which has operations in Kenya, Uganda, Tanzania, Rwanda and South Sudan, said its pretax profit rose by 12 percent to 26.5 billion shillings ($261 million) in 2015, slower than the 18 percent increase in the previous year.

It maintained its annual dividend at 2 shillings per share but split it into half as a cash payment and half in the form of shares, known as a scrip dividend.

Chief Finance Officer Lawrence Kimathi said KCB would raise more capital later this year.

“We will be going into the market this year to raise tier two capital,” he told a news conference. Second tier capital for banks can include subordinated debt.

The bank’s assets increased by 14 percent to 558 billion shillings last year, driven by a 22 percent jump in lending, but analysts noted the balance sheet shrunk in the fourth quarter.

“That suggests the market got too expensive for them to mop up deposits at higher rates, and lend at a rate that would earn them a return, or they are managing their growth because of their capital position,” said Francis Mwangi, head of research at Standard Investment Bank.

“That is why they have issued a bonus share,” Mwangi said, referring to the scrip.

Kenya’s central bank raised lending rates in the middle of the year to combat volatility in the foreign exchange rate, sending commercial lending rates to as high as 25 percent.

South Sudan abandoned its fixed exchange rate in December and moved the currency to a free-floating rate, which led to a massive devaluation, further putting pressure on KCB‘s balance sheet. The bank derives about 10 percent of its revenues from South Sudan.

Net interest income rose 9 percent to 39.24 billion shillings, KCB said, adding the ratio of non-performing loans rose to 6.6 percent from 6.3 percent.

Chief Executive Joshua Oigara said the value of transactions on KCB‘s mobile banking platforms and agents – small businesses like shops that are contracted to offer services like taking deposits on behalf of banks – had grown by more than 90 percent during the year.

KCB was talking to governments in the region where it has operations, like in South Sudan, about launching similar services there.

Shares of KCB rose more than 3 percent after the results were announced.