Absa, Stanbic lead in loans to customers as rivals favour State

Guests follow proceedings during the launch of the 2022 Kenyan Banking Sector Total Tax Contribution study by PricewaterhouseCoopers Limited (PwC)and Kenya Bankers Association on August 02, 2023 at Serena Hotel, Nairobi. PHOTO | BILLY OGADA | NMG

Absa Bank Kenya and Stanbic Bank lead the pack of large banks that have lent more to customers in an analysis that also shows institutions have over-extended their advances to the private sector, leaving them in a tight liquidity position.

An analysis of banks’ financial statements for the half year ended June shows that the two are among the tier-one lenders that disbursed the equivalent of more than 80 percent of customer deposits to firms and households, even as rivals increased their lending to the government.

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Absa, which is listed on the Nairobi Securities Exchange (NSE), had a loan-to-deposit ratio (LDR) of 94.9 percent in the review period, the highest among the country’s nine largest lenders.

Absa’s ratio was however lower than Development Bank at 127.4 percent and Victoria Commercial Bank at 94.9 percent, an indicator that the two lenders have a lot of customer deposits tied up in loans.

The LDR for Stanbic, also listed at the NSE, was at 93.5 percent.

A high ratio is an indicator of the critical role that such banks play in expanding loans to the private sector. By comparing a bank’s total loans to total deposits, LDR is also critical in assessing a lender’s liquidity.

Equity Group and Co-operative Bank of Kenya, might have utilised other finances such as loans from development partners, as opposed to customer deposits, thus had a lower ratio. Co-op Bank had a ratio of 78.8 percent, I&M (77.3 percent), KCB (71.5 percent), and Equity (69.5 percent).

Standard Chartered Bank Kenya, with an LDR of 51.3 percent and NCBA (59.6 percent) are among the laggards among the tier-one lenders.

There are no statutory levels prescribed by the Central Bank of Kenya (CBK) for loan deposit ratio, said Sunil Sanger, the managing director at Orion Advisory Services.

“But globally the usual expectation of a deposit-taking bank is about 65-70 percent,” said Deepak Dave, a financial expert.

Banks that had the lowest LDR include Eco Bank and Bank of Baroda at 35 percent, Bank of India at 37.9 percent and Prime Bank at 40.2 percent.

“Customers are placing funds with banks with banks for higher interest rates. Moreover, most banks invest with CBK due to high interest rates,” said Prime Bank in response to the Business Daily queries.

The small lender said its credit advances have grown 20 percent since the end of the Covid-19 pandemic, attributing its growth in loan book to branch expansion.

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“Central Bank requires each bank to prudently manage its liquidity. Prime Bank has consistently maintained a high liquidity as part of its strategy,” the bank added.

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