A new report by Moody’s has revealed that top Kenyan banks have stronger cost-to-income ratios than Nigerian banks despite higher retail overheads.
Moody’s added that Kenyan banks' stronger cost-to-income ratios support their profitability and reflect their higher net interest margin.
The report by the financial research firm also compares KCB Bank Kenya Limited, Equity Bank (Kenya) Limited and Co-operative Bank of Kenya Limited with Nigeria's Access Bank Plc, Zenith Bank Plc and United Bank for Africa Plc.
“Kenyan banks' lower cost-to-income ratios primarily reflect their higher net interest margins derived from their greater exposure to retail clients. By contrast, Nigerian banks' lending is focused on lower-margin corporate clients.
“Additionally, funding cost for Kenyan banks stood 100 basis points lower over the same period, reflecting their wider access to retail deposits.
"Over the coming quarters, we expect Kenyan banks to maintain superior profitability to their Nigerian peers owing to higher margins, stronger cost-to-income and lower loan-loss provisioning costs," said Peter Mushangwe, a Moody's Analyst and the report's co-author.
However, Nigerian banks' cost-to-income ratios will likely improve faster as they increase their higher-margin retail exposure while containing costs as they digitalise their operations and limit branch and staff expansion.