East African Banks Face Lower Earnings With Proposed Treasury Single Account
East African banks are bracing themselves for yet another period of reduced earnings as governments move to set up treasury single accounts to mop up public funds from commercial banks.
The policy shift, which has been approved by the East African Community partner states, is expected to reduce cashflow within the banking sector and subsequently stifle economic activity by reducing lending to the productive sectors of the economy. The regional bloc has resolved that each partner state implements a Treasury Single Account (TSA) to ensure complete oversight over the government's cash flows and to reduce the cost of keeping public money in several commercial banks.
Tanzania's Finance Minister Phillip Mpango said the move would reduce the number of government accounts operated in commercial banks and the Central Bank and reduce costs related to services offered by commercial banks to the government. The implementation of this policy comes as regional banks continue reporting mixed results attributed to a number of factors, including high levels of non-performing loans, high operating costs, slowdown in economic activity and controlled interest rates in some countries such as Kenya.
The regional banks that have released their half-year financial performance for this year are Bank of Kigali, KCB, Equity Bank, Co-operative Bank of Kenya, Barclays Bank Kenya and Stanbic Bank Uganda. In Kenya, KCB Group and Equity Bank announced profit after tax of $121 million and $110 million respectively during the six months to June 30. Co-operative Bank of Kenya also recorded a 7.6 per cent jump in its after tax profits to $99.8 million driven by increased investment in government securities.
Barclays Bank of Kenya's net earnings grew six per cent to Ksh3.8 billion ($37.2 million) while that of Stanbic Bank Uganda remained flat at Ush96 billion ($25.8 million). The Bank of Kigali made a net profit of Rwf13.4 billion ($15.4 million) during the six months to June 30 compared with Rwf16.7 billion ($18.9 million) in the same period last year.
While there is increased optimism within the banking sector of a probable turnaround in performance during the year, rating agency Moody's Investor Service says the lenders' increased exposure to government deposits could further dent their earnings. In addition, cashflow stress within the sector could be heightened by the increasing mismatch between short term deposits and long term loans, as banks are unable to use short-term deposits to lend to long-term borrowers. Read more from All Africa.
Source: All Africa