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EAC banks hit rough patch as earning prospects dip

10 Sep 2019

East Africa’s commercial banks endured a difficult time during the six months’ period to June 30 this year, recording lower than expected growth in earnings amid mounting pressure on interest income—their key source of revenues—while struggling to raise long term funding to boost their lending business.

A cocktail of factors including a requirement to increase loan loss provisions conspired to deny banks hefty earnings which they enjoyed even during difficult periods of economic downturn.

Unaudited financial statements sampled by The EastAfrican show that most lenders have crawled into single-digit profit growth while others have turned into losses.

While the performance may not be encouraging to the managers of these institutions, analysts think the earnings prospects of the second half of the year appear even dimmer going by the rising volume of non-performing loans, flashing signals of weaker than expected economic growth of regional economies and difficulties in mobilising long term deposits to sustain lending businesses.

Loan-loss provisions

A survey by global consultancy firm McKinsey & Company titled Roaring to life: Growth and innovation in African retail banking released last year underscored the significance of customer deposits arguing that deposits by retail customers will be the greatest source of revenue generation for African banks contributing an estimated $11 billion to the banks’ top line during 2017-2022 period.

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