Tier-one lenders witnessed a significant cut down in their reliance on interest income from lending last year. This was due to a surge in revenue from mobile transactions and foreign exchange trading, which bolstered the share of non-funded income to 38 percent of the total income, as compared to 34.4 percent in 2021.
As reported by the nine (Banks) lenders, non-interest income rose by 33 percent to Sh225.4 billion in 2022, up from Sh164.6 billion received the previous year. The contribution of net interest income to total income fell to 62 percent in the year ending December 2022 from 65.6 percent in 2021.
In 2021, net interest income for the banks stood at Sh367.6 billion, indicating an increase of 17.3 percent from Sh313.4 billion. Foreign exchange income increased by at least 30 percent across banks, with I&M Holdings leading the way, followed by NCBA. This was driven by the weakening of the shilling against the dollar.
Apart from forex and account-mobile wallet transfer fees, non-interest income includes charges such as account maintenance charges, loan processing fees, transaction fees, insufficient funds fees, and inactivity levies.
Michael Odundo, a research associate at Standard Investment Bank, attributes the surge in non-funded income mainly to foreign exchange income.
According to Business Daily’s analysis, the contribution of non-funded income to total income for banks is returning to pre-pandemic levels, standing at 41.8 percent in 2019. However, this year, interest income is expected to grow at a faster pace due to the continued approval of risk-based pricing plans.
Moreover, the Central Bank of Kenya has raised its base lending rate from seven percent to 9.5 percent between March 2022 and March this year, leading to higher interest rates overall.
Banks taking up new government bonds can also expect to earn more in interest due to rising yields on government securities. The yield curve has gone up considerably over the past year, with the latest five-year bond rating at about 13.2 percent compared to about 12 percent in June 2022.
Furthermore, rates in the Treasury bills market have also risen significantly, ranging between 10 and 10.9 percent across the three tenors, from a range of 7.4 to 9.7 percent a year ago.