Standard Chartered Kenya’s Profit Plunge: A KSh 7B Payout and a Contracting Balance Sheet

Standard Chartered Bank Kenya (SCBK) Limited, a prominent subsidiary of the UK-based Standard Chartered Plc, finds itself navigating a turbulent financial period, reporting a significant and sharp decline in its Profit After Tax (PAT). For the nine months ending September 30, 2025, the lender posted a net profit of KSh 9.79 Billion, marking a steep 38.3% drop compared to the KSh 15.86 billion recorded in the corresponding period of 2024. This massive contraction in profitability stems from a combination of unique, one-off costs and systemic pressures impacting its core revenue streams, specifically its lending business and non-interest income. The combined effect has seen the bank issue a comprehensive profit alert to investors.

The profit slump is primarily attributable to two highly impactful factors: an unprecedented, mandatory provision of KSh 7 Billion for additional pension payouts, and a challenging operational environment characterized by aggressive rate cuts from the Central Bank of Kenya (CBK). This regulatory climate has exerted pressure on the Net Interest Margins (NIMs) of traditionally high-cost lenders. The bank’s response to these headwinds has been a tactical shift in asset allocation, a prudent approach to risk provisioning, and a struggle to contain mounting operational expenditure, which has also contributed to the overall decline. The results place SCBK’s performance in stark contrast to the moderate sector-wide growth seen across the Kenyan banking landscape during the same period.

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The KSh 7 Billion Pension Earthquake and IAS 19

The most decisive factor contributing to the significant slump in SCBK’s profitability in Q3 2025 is the substantial KSh 7 Billion provision for additional pension payouts. This massive outlay is not a routine cost but rather a direct consequence of a Retirement Benefits Appeals Tribunal ruling. The ruling required the lender to make this payment to 629 of its former employees, concluding a long-running dispute over pension benefits.

To put this KSh 7 Billion provision into perspective, it represents approximately 53% of the bank’s total Profit Before Tax (PBT) of KSh 13.20 Billion for the nine-month period. Such a substantial, non-operational expense is rare and immediately reshapes the bank’s entire financial outlook for the year. This provision is the core reason why the lender has already issued a profit alert, expecting its 2025 full-year earnings to drop by at least 25% from the previous year.

The accounting treatment of this liability is crucial for understanding its impact on the bank’s balance sheet and income statement. The payments will impact SCBKL’s overall costs in line with ‘IAS 19 Employee Benefits’ on accounting for past service costs. Under this international accounting standard, the requirement to increase benefits retroactively must typically be recognized immediately in the profit or loss statement. This explains why the bank had to absorb the entire KSh 7 Billion as a charge against its profits in the current reporting period, fundamentally skewing its quarter-to-quarter performance comparisons.

Despite the financial hit, the bank’s management moved quickly to reassure the market of its stability. Kellen Kariuki, SCBKL Board Chairperson, emphasized the bank’s robust capital position: “We would like to reassure our clients and stakeholders that SCBKL is adequately capitalised to meet the anticipated obligations. We continue to execute our strategy of combining differentiated cross-border capabilities with leading wealth management expertise underpinned by sustainability.” This statement was aimed at allaying investor fears about the bank’s solvency and ensuring that the market understood the provision was a technical accounting charge rather than a failure in core operations. The bank’s ability to absorb this expense without jeopardizing its regulatory capital requirements speaks to its deep financial buffers.

Decelerating Core Lending Business

Beyond the one-off charge, the bank’s core operating income suffered a significant deceleration, reflecting a challenging macro-economic environment and shifting monetary policy. StanChart Bank Kenya saw its Interest Income fall by 10.35%, dropping from KSh 24.84 Billion in Q3 2024 to KSh 22.27 Billion in Q3 2025. This decline is directly linked to pressures on the bank’s lending portfolio, which, as a premium-tier institution, often carries higher-cost funding, making it susceptible to interest rate volatility.

The key systemic factor here is the Central Bank of Kenya (CBK) going aggressive on cutting the benchmark rate (CBR). The CBK has maintained a posture of rate reduction for the better part of 2025 and the preceding year, a policy aimed at stimulating economic activity and easing the cost of credit for consumers and businesses. This trend of rate cutting, however, significantly piles pressure on commercial lenders to lower their cost of loans to customers. For banks like SCBK, which traditionally rely on higher margins, the consistent reduction in the CBR leads to a compression of their Net Interest Margin (NIM), directly impacting their bottom line.

This NIM compression coincided with a cautious approach to credit issuance, resulting in a shrinking loan book. The credit disbursed to customers declined from KSh 151.3 Billion in Q3 2024 to KSh 146.6 Billion in Q3 2025. This contraction of 3.1% in the loan book suggests that the bank either became more risk-averse in a volatile economy or struggled to compete effectively on pricing following the CBK rate cuts, leading to slower credit uptake.

Simultaneously, SCBK demonstrated a strategic, defensive asset shift. As the bank pulled back slightly from customer lending, it ramped up its investments in Government papers. These investments increased from KSh 145.9 Billion in Q3 2024 to a substantial KSh 156.5 Billion at the end of September this year. This maneuver, which mirrors a broader trend among Kenyan financial institutions, represents a flight to safety. Government securities often offer competitive, high-yield, and low-risk returns, providing a stable income floor when the core lending business faces volatility and margin pressure.

The Steep Slide in Non-Funded Income (NFI)

Adding to the profit woes was the significant deterioration in Non-Interest Income (NFI), often regarded as a crucial measure of a bank’s ability to generate revenue from fee-based services, transactional activities, and digital solutions. SCBK had its Non-Interest Income slide steeply by 28.57%, plummeting from KSh 14.23 Billion to KSh 10.16 Billion at the close of September 2025.

This decline is particularly concerning as NFI is generally viewed as a counter-cyclical revenue source, expected to remain stable even when interest income falls. The steep drop suggests potential difficulties across several lucrative segments, including:

1. Reduced Foreign Exchange Trading: Slower trade volumes or reduced volatility in the foreign exchange market, following interventions or stabilization measures by the CBK in its foreign exchange policy, could have depressed the bank’s income from currency trading, a historic strong point for international banks.
2. Lower Wealth Management Fees: A reduction in assets under management (AUM) or a market slowdown could have led to lower fees from its wealth management division, a segment where StanChart positions itself as a market leader.
3. Decreased Transactional Fees: While digital channels have expanded, a general slowdown in high-value corporate transactions or a reduction in fee structures to remain competitive might have contributed to the KSh 4.07 Billion shortfall in NFI.

The combined effect of both interest and non-interest income performance resulted in the bank’s Total Operating Income declining by 17%, falling from KSh 39.07 Billion to KSh 32.43 Billion.

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Rising Operational Costs and Prudent Provisions

While revenues were contracting, the cost of running the business continued its upward trajectory, further squeezing the profit margins. StanChart Bank Kenya’s Total Operating Expenses rose by 15.85%, from KSh 16.60 Billion to KSh 19.23 Billion at the end of September 2025. This increase, even when factoring out the KSh 7 Billion pension provision which would be categorized separately for core cost analysis, indicates a lack of operational efficiency gains or necessary investments in digital infrastructure and talent.

However, amidst the rising costs, one area demonstrated improved financial health: prudent risk management. The lender’s provisions for loan losses actually decreased to KSh 1.744 Billion from KSh 1.958 Billion in Q3 2024. This reduction suggests improved asset quality and effective recovery measures implemented by the bank’s credit management teams.

This risk management success is corroborated by a significant cut in the size of its Non-Performing Loan (NPL) book, which dropped substantially from KSh 12.14 Billion to KSh 9.132 Billion. Reducing the NPL ratio is a vital indicator of a bank’s long-term stability and its effectiveness in mitigating credit risk. This is a critical silver lining in an otherwise difficult set of results, indicating that despite a cautious approach to new lending, the quality of its existing portfolio is improving.

The dramatic impact of the pension charge, coupled with contracting income and rising core expenses, ultimately led to the bank’s Profit Before Tax (PBT) slumping sharply from KSh 22.47 Billion to KSh 13.20 Billion in Q3 2025—a decline of over 41%.

Balance Sheet Dynamics and Investor Metrics

Despite the pronounced profit volatility, the bank’s overall Balance Sheet Size increased by 3.65%, growing from KSh 370.9 Billion to KSh 384.4 Billion. This modest growth indicates a stable yet cautious expansion of assets, primarily driven by the ramp-up in Government securities mentioned earlier.

However, the bank also experienced a slight dip in its core funding base. Customer Deposits fell by 0.35%, decreasing from KSh 284.4 Billion to KSh 283.4 Billion in Q3 2025. While minor, this contraction signals a highly competitive environment for deposits, forcing SCBK to either pay higher interest rates to retain funds or see a marginal shift of funds to competitors or higher-yielding alternatives. The ability to attract and retain low-cost funding remains a critical challenge for profitability.

The decline in overall profitability has had an expected and profound effect on investor-focused metrics. Earnings per Share (EPS), one of the key indicators of profitability, declined from KSh 41.60 to KSh 25.57, representing a sharp 38.5% drop. This metric clearly quantifies the direct loss of value for shareholders due to the period’s financial performance.

Market Reaction and Future Outlook

The market’s reaction to the profit warning and the subsequent release of the Q3 results was immediate and bearish. Analysts had widely maintained that a fall in Q3 2025 Net Earnings made it inevitable that the SCBK counter would experience a price correction at the Nairobi Securities Exchange (NSE).

The profit warning issued by the lender had already triggered an initial sell-off, with the SCBK shares shedding around KSh 15.00 in the trading sessions leading up to the results. On the day of the release, at 11:14 am on Tuesday, November 25, 2025, SCBK shares had declined by KSh 9.25 or 3.10% to KSh 289.00 from the previous closing price of KSh 298.25, with a traded volume of 6,309 shares. This downward pressure reflects investor anxiety not only over the KSh 7 Billion one-off charge but also over the contraction in core revenues from both lending and fee-based activities. The bank’s year-to-date performance already showed a 6.76% decline even before the Q3 results were fully digested by the market.

Looking ahead, SCBK faces a dual challenge. The bank must manage the fiscal impact of the pension payout while simultaneously repositioning its core business to thrive in a low-interest-rate environment. The reduction in the NPL book offers a strong foundation, suggesting that the bank’s underlying credit quality is sound. However, the bank must accelerate its strategy of combining differentiated cross-border capabilities with leading wealth management expertise, as stated by the board. This includes:

1. NFI Diversification: Finding new ways to boost non-funded income through digital innovation and cross-border trade finance, mitigating the sharp 28.57% slide seen this quarter.
2. Loan Book Rejuvenation: Strategically growing the loan book again by competitively pricing products without compromising on risk.
3. Cost Rationalization: Addressing the 15.85% rise in core operating expenses to improve the efficiency ratio once the extraordinary pension cost is accounted for.

While the KSh 7 Billion provision is a substantial non-recurring event, the structural challenges of contracting interest and non-interest income remain critical indicators of the difficulty faced by premium banks in a rapidly changing regulatory and competitive landscape. The market will be keenly watching the final quarter results to assess the true trajectory of the bank’s core profitability, post-pension-payout.

The performance serves as a stark reminder that even well-capitalized, major financial institutions are vulnerable to significant regulatory and legal rulings, which can overshadow sound operational fundamentals. The focus now shifts to how CEO Kariuki Ngari and his team can leverage the bank’s strong capital base and improving asset quality to regain momentum and satisfy the demands of the shareholders who have seen a material erosion of their EPS in 2025. The market will be looking for a clear strategy to prevent the core business from being outpaced by domestic competitors who appear to be navigating the high-interest rate and high-liquidity environment more effectively.

The impact of the pension ruling on the bank’s share price can be tracked further through market updates from financial news outlets and the official circulars released by the NSE.

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By: Montel Kamau

Serrari Financial Analyst

4th December, 2025