(Ecofin Agency) - Kenya's largest banking group by assets announced the cut in a context where most local banks are announcing an increase in dividends. The decision suggests a greater consideration of the underlying risks behind its strong accounting performance.

Kenya Commercial Bank (KCB), Kenya's largest bank by assets, announced on Wednesday, March 15, a 33% cut in its dividend per share from 3 shillings in 2021 to 2 shillings for FY2022. This comes despite a 19.4% increase in its net profit, which now stands at 40.6 billion shillings ($312.8 million).

The net profit jumped due to an increase in revenue across all categories, particularly interest income which benefited from an increase in loans, interest rates, and noninterest income. Loan impairment was also lower year-on-year. 

In that context, the dividend cut suggests that the bank may be concerned about its ability to manage certain risks. Non-performing loans increased significantly to Sh147.3 billion, while potential losses from off-balance sheet commitments also increased to almost Sh170 billion.

The value of risk-weighted assets increased to Sh216 billion, which explains the bank's cautious stance, as the majority of shareholders are public entities with little concern for dividend payouts. This reduction in shareholder remuneration contrasts with announcements of dividend increases in the Kenyan banking sector in recent weeks. Subsidiaries of groups such as Standard Bank, Standard Chartered Bank, and Absa Group Africa have all announced dividend increases for the 2022 financial year.