Absa Bank Kenya has reported a 3.6 percent growth in profit after tax for the three-month period ended March riding on cost cutting.
The subsidiary of South Africa-based Absa Group reported a net profit of Sh6.1 billion for the first quarter, up from Sh5.9 billion in a similar period a year earlier.
The lender rode on cuts on interest paid out to customers, loan loss provision and staff costs to buttress its profitability against a drop in interest and forex income.
“We reported a 3.6 percent growth in profit after tax … supporting a return on equity of 27 percent, up from the same period last year,” said the bank’s managing director Abdi Mohammed.
“Revenue closed the quarter at Sh15.8 billion, reflecting a four percent decline year-on-year. This was primarily due to lower interest rates, partially offset by an improved cost of funds,” he added.
The bank’s loan book shrunk 5.5 percent to Sh308 billion, resulting in a Sh2 billion drop in interest earned from customers to Sh11.4 billion.
Banks have been increasing their uptake of the less risky government securities as tough economic conditions have resulted in higher defaults from the private sector.
Absa increased its lending to the government to Sh144 billion by March 2025 from Sh85.7 billion a year earlier. This saw interest earned from government securities rise by Sh1 billion to Sh3.1 billion.
Customer deposits with the bank grew 4.8 percent to Sh371 billion. Despite this growth, interest paid out to customers declined 21.4 percent to Sh3.3 billion, reflecting the declining cost of funds in the money market.
Forex income shrunk 28 percent to Sh1.5 billion as a stable shilling denied traders margins to capitalise on for earnings.
A 41.6 percent drop in loan loss provisions to Sh1.4 billion helped the lender lower its operating expenses by Sh1 billion.
“The only benefit we see the bank experienced in quarter one is the reduction in provisions, which worked to bolster up earnings,” said analysts at Sterling Capital.
“We do foresee this trend being somewhat sustainable come full year 2025 given that the bank normally keeps its coverage above both Central Bank of Kenya and IFRS requirements,” they added.
Absa’s stock of non-performing loans stood at Sh44 billion up from Sh38 billion a year earlier, underlining a tough business environment. The bank’s ratio of bad loans, at 12.3 percent, remained lower than the industry average of 17.2 percent.
Credit expansion in the country has taken a hit, growing by a marginal one percent, as banks have been reluctant to lend to the private sector to protect the quality of their loan book.
“We expect the bank to focus on lending to the government, which will, unfortunately, be insufficient to offset declines from not lending to the private sector,” said Sterling Capital.
The staff costs declined marginally, by Sh80 million, to Sh2.9 billion at a time when banks are turning to digitisation to support payroll cuts. Rental charges declined by a fifth to Sh15 million as customers continue migrating from brick and mortar to digital platforms.
