Standard Chartered Bank Kenya has reported a remarkable performance for the nine months ending September 2024, posting a net profit of KSh 15.8 billion, a 63% increase compared to KSh 9.7 billion in the same period last year. The robust growth reflects a strong performance across various income streams and a strategic focus on operational efficiency.

Key Drivers of Growth

The bank’s total revenue surged by 32.7% to KSh 39.1 billion, driven by double-digit growth in both funded and non-funded income.

• Net Interest Income: This grew by 17% to KSh 24.8 billion, fueled by higher returns on investments, demonstrating the bank’s ability to optimize its lending and investment portfolios in a competitive market.
• Non-Funded Income: Almost doubling year-on-year, non-funded income rose to KSh 14.2 billion, bolstered by increased fees and commissions as well as a significant rise in forex trading income.

Customer loans grew by 5.4% to KSh 151.3 billion, signaling increased demand for credit across sectors. However, customer deposits dipped by 4.8% to KSh 284.4 billion as the bank shifted focus toward high-value affluent and retail banking products.

Operational Efficiency and Prudence

Despite a notable 48.4% reduction in gross non-performing loans (NPLs), the bank increased its loan loss provisions by 7.4% to KSh 1.96 billion, reflecting a prudent approach to risk management.

Operating expenses rose modestly by 5.4% to KSh 16.6 billion, driven by higher staff costs and impairment provisions. The lender also expanded its investments in government securities by 22%, reaching KSh 65.4 billion, indicating a strategic pivot to low-risk assets amidst macroeconomic uncertainties.

Earnings per share (EPS) climbed 67.3% to KSh 41.60, up from KSh 25.44 in Q3 2023, showcasing the bank’s ability to deliver value to its shareholders.

CEO Insights

“We have delivered a strong performance in the third quarter with profit before tax up 64%, driven by strong topline growth and well-managed costs,” said Kariuki Ngari, Standard Chartered Bank Kenya’s Chief Executive Officer.

Ngari also expressed optimism about the macroeconomic outlook, citing declining interest rates, falling inflation, and a stable currency as positive indicators for the fourth quarter.

Market Performance

The bank’s stellar financial performance has been mirrored in its stock market activity. Standard Chartered Bank Kenya closed the latest trading session at KSh 234.00 on the Nairobi Securities Exchange (NSE), marking a 44.4% gain in year-to-date performance.

Despite its robust earnings, the bank opted not to issue an interim dividend for the reporting period, a move likely aimed at conserving capital for further investments and to navigate any potential economic volatility.

Contextualizing the Performance

Economic Backdrop

Kenya’s banking sector has continued to exhibit resilience despite global economic challenges, such as rising interest rates and inflationary pressures. The Central Bank of Kenya’s monetary policy adjustments, including interest rate cuts earlier this year, have provided some relief to borrowers and spurred credit demand, contributing to growth in customer loans.

Additionally, inflation rates in Kenya have gradually eased, declining from a high of 9.6% in February 2024 to 7.1% in September, improving consumer and business confidence. The Kenyan shilling, which has been under pressure against major currencies, showed relative stability in the third quarter, aiding forex income growth for banks like Standard Chartered.

Sector Comparison

Standard Chartered’s performance aligns with broader trends in Kenya’s banking industry, where large financial institutions have leveraged diversified income streams and digital innovations to drive growth. Peers such as Equity Bank and KCB Group have also reported strong earnings, driven by similar factors, including increased lending and investment in technology.

However, StanChart’s focus on affluent and retail banking products distinguishes it from competitors, allowing the bank to tap into high-margin segments and reduce dependency on low-margin deposit growth.

Strategic Focus Areas

Expanding Digital Banking

Standard Chartered has consistently invested in digital transformation, enabling seamless banking services for its customers. The bank’s online and mobile platforms have seen increased adoption, with digital transactions now accounting for a significant share of total customer interactions.

ESG Commitment

The lender has also doubled down on its commitment to environmental, social, and governance (ESG) principles. Recent initiatives include funding renewable energy projects and supporting small and medium-sized enterprises (SMEs) with sustainability-focused loans. This aligns with the bank’s global strategy to promote sustainable development and inclusive growth.

Strengthening Corporate and Retail Offerings

In line with its global strategy, the bank continues to expand its corporate banking portfolio while enhancing retail banking offerings. Affluent products, such as tailored investment solutions and wealth management services, have gained traction among Kenya’s growing middle and upper-class population.

Challenges and Opportunities

Foreseen Challenges

• Deposit Decline: The slight decline in customer deposits may signal heightened competition within the banking sector or shifting customer preferences.
• Rising Operational Costs: While operating expenses grew modestly, continued inflationary pressures could lead to higher cost escalations in the coming quarters.

Opportunities

• Improved Economic Outlook: Declining inflation and stabilizing currency provide a conducive environment for growth in lending and investment.
• Government Securities: Increased allocation to government securities offers a low-risk revenue stream, particularly in a volatile global market.

Conclusion

Standard Chartered Bank Kenya’s Q3 2024 performance underscores its strategic agility and operational excellence. With a sharp focus on revenue diversification, prudent risk management, and digital transformation, the bank is well-positioned to sustain its growth trajectory.

As Kenya’s macroeconomic environment continues to improve, StanChart’s strategic initiatives, particularly in affluent and retail banking, could further consolidate its market leadership. Investors and stakeholders will be watching closely as the bank navigates the fourth quarter and beyond.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th November, 2024