KCB Group has posted a resilient performance for the first half of 2025, with after-tax profits rising by 8.0% year-on-year to KES 32.3 billion. This growth was largely driven by a surge in net interest income and improved cost efficiency, even as non-funded income came under pressure.

The Group’s annualized earnings per share (EPS) climbed to KES 19.61, up from KES 18.15 in the same period last year, reflecting solid profitability across its banking operations.

Margin Expansion and Interest Income Strength

Net interest income grew by 12.7% year-on-year to KES 69.1 billion, supported by a favorable shift in asset yields and funding costs. Total interest income rose modestly by 3.2% to KES 100.5 billion, while interest expenses dropped sharply by 13.1% to KES 31.4 billion. This led to an improvement in the net interest margin (NIM), which rose to 7.6%, up from 6.9% in 1H24.

The annualized yield on interest-earning assets edged up by 13 basis points to 11.6%, while the cost of funds declined by 61 basis points to 3.9%, highlighting the Group’s effective asset-liability management.

Non-Funded Income Weakens

Despite the strong core banking performance, non-funded income declined by 11.3% year-on-year to KES 29.5 billion, weighed down by a 48.0% drop in foreign exchange trading income to KES 5.2 billion. Other fees and commissions dipped slightly by 1.0% to KES 14.2 billion, although fees on loans and advances rose by 8.9% to KES 6.1 billion. Other income increased by 19.9% to KES 4.0 billion, partially offsetting the decline.

As a result, the contribution of non-funded income to total operating income fell to 29.9%, down from 35.2% in 1H24.

Cost Management and Asset Quality

Operating expenses (excluding provisions) rose by a modest 2.4% year-on-year to KES 45.4 billion, driven by an 8.1% increase in staff costs to KES 20.8 billion, while other expenses declined slightly by 0.6% to KES 19.3 billion. The Group’s cost-to-income ratio (excluding provisions) improved to 46.0%, down from 46.8% a year earlier.

Loan loss provisions increased marginally by 2.2% to KES 12.5 billion, keeping the annualized cost of risk at 2.3%, slightly lower than the 2.4% recorded in 1H24.

Gross non-performing loans (NPLs) rose by 4.2% year-on-year to KES 221.1 billion, although they declined by 5.2% quarter-on-quarter. Interest in suspense increased by 9.6% to KES 32.0 billion, resulting in total NPLs of KES 189.1 billion. The NPL ratio eased by 25 basis points to 16.8%, signaling a slight improvement in asset quality.

“The business across markets remains resilient despite the tough operating environment in key markets like Kenya. Despite this, we have placed our customers at the fore, to ensure we meet their needs in a timely manner” said Paul Russo, the Group Chief Executive Officer during the release of the results on Wednesday.

Balance Sheet and Capital Strength

Net loans and advances grew by 6.1% to KES 1.1 trillion, while holdings in government and investment securities surged by 18.4% to KES 424.4 billion. On the funding side, customer deposits remained flat year-on-year at KES 1.5 trillion, though they rose by 4.1% quarter-on-quarter. Borrowed funds increased significantly by 35.2% to KES 79.5 billion.

KCB Bank Kenya’s capital ratios remain comfortably above regulatory thresholds, with the core capital ratio at 15.2% (minimum: 10.5%) and the total capital ratio at 19.6% (minimum: 14.5%). The liquidity ratio improved to 41.4%, up from 40.9% in 1H24.

Valuation and Returns

KCB Group continues to trade at attractive valuation multiples, with a trailing price-to-earnings (P/E) ratio of 2.5x, well below the industry median of 4.2x. Its price-to-book (P/B) ratio stands at 0.5x, compared to an industry median of 0.8x. The Group’s return on equity (ROE) is a healthy 20.3%, while return on assets (ROA) stands at 3.2%, underscoring its operational efficiency.

Dividend Payout

In a move that will delight shareholders, the board has declared a KES 4.00 per share dividend, comprising:

• KES 2.00 interim dividend from 1H25 profits
• KES 2.00 special dividend from the sale of National Bank of Kenya (NBK)

The dividend will be paid on or before November 11, 2025, to shareholders registered by the close of business on September 3, 2025.