International Finance

Kenyan banks outperform Nigerian counterparts

Moody’s Kenya

Banks in Kenya have managed to be more efficient and outperform their counterparts in Nigeria, according to a report by credit rating agency Moody’s.

Reportedly, banks in Kenya will earn higher profits compared to the banks in Nigeria due to the adoption of technology.

According to the Central Bank of Kenya, the number of bank branches came down which led to higher efficiency. Industry data from the central bank revealed that the number of branches came down from 1518 in 2017 to 1505 in 2018. This is mainly due to the deployment of mobile channels and the decision to hire third-party agents.

The report by Moody’s revealed that banks in Kenya’s cost-to-income ratios averaged 49 percent over the last four years, compared with 57 percent for Nigerian banks. Also, Kenya’s three largest rated banks have stronger cost-to-income ratios than their Nigerian counterparts, despite their higher retail overhead costs.

The banks that have been taken into consideration in the comparison report by Moody’s include KCB Bank Kenya, Equity Bank, Co-operative Bank of Kenya, Nigeria’s Access Bank, Zenith Bank and United Bank for Africa.

The banks in Kenya are also being helped by the Central Bank of Kenya’s decision to remove the interest rate cap, which was introduced in 2016.

Moody’s Analyst and the report’s co-author, Peter Mushangwe said in the report, “Over the coming quarters, we expect banks in Kenya to maintain superior profitability to their Nigerian peers, owing to higher margins, stronger cost-to-income, and lower loan-loss provisioning costs.”

He added, “Kenyan banks will continue to benefit from their higher net interest margins (NIMs) because the recent removal of interest rate caps will support loan yields. However, Nigerian banks’ cost-to-income ratios will likely improve faster as they increase their higher-margin retail exposure while containing costs as they digitalise their operations and limit branch and staff expansion.”

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