McKinsey, a global management consulting company, has released a report that indicates Kenyan and other African banks are the second most profitable in the world. Latin American banks are the top most profitable globally.
Banks with operations in Africa had an average return on equity (ROE) of about 15 percent in 2017. Kenyan banks recorded a higher figure of 24.6 percent on average based on 2016 data 2016 was the year the interest rate capping law was introduced.
However, the rate caps are expected to negatively impact the profitability of Kenyan banks in 2017 without interfering with Kenya’s ROE ranking globally.
“Kenya’s capping of interest rates in 2016 provides a taste of the impact of increasing consumer protection. If unmitigated, the impact on Kenyan banks’ ROE could be as high as four to 4.5 percent,” McKinsey said.
That is to say that the 24.6 percent in 2016 could decline to 20 percent, which is still higher than Africa’s average of 15 percent. The total profitability level for African banks was more than twice that of Asia, US, and Europe.
“Three of the 11 largest banking markets — Algeria, Cote d’Ivoire, and Kenya — have shown strong profitability through the cycle, delivering ROE above the cost of equity (COE),” says the McKinsey report titled Roaring to Life: Growth and Innovation in African Retail Banking. Africa’s banking markets are among the most exciting in the world. The continent’s overall banking market is the second-fastest growing and second most profitable of any global region, and a hotbed of innovation,” the report stated.
The study discovered Kenyan banks and African banks are performing well because they are creating innovations to meet the great customer needs.
The study mentions Kenya’s Commercial bank of Africa (CBA) for its M-Shwari services provided in partnership with Safaricom. Furthermore, the study cites Equity bank for digital innovations and KCB for M-Shwari.