Banking Sector Third Quarter 2021 results set to be released during the month, is expected to lift the level of activity at the Nairobi Securities Exchange (NSE).
Equity Group Holdings is the first off the blocks and will release its quarterly financials this Monday, 8th November 2021.
Analysts anticipate positive results for banks reflecting the increase in economic activity and reduced non-performing loans.
“We believe that there’s more upside on the banking stocks which are likely to recover as earnings improve. Banking stocks will rally on the back of strong 3Q’21 numbers,” said AIB-AXYS Africa Research.
Banking Stocks Performance
Banking stocks that were among the top movers at the NSE when trading ended on Friday last week were Equity Group and Co-operative Bank. Equity moved 8.4 Million shares, at the price of KSh 49.90 at the end of the week, accounting for 22.7% of the week’s market activity with 66.6% participation from foreign investors.
Co-operative Bank moved 4.6 Million shares last week, ending Friday at KSh 12.50 and accounting for 3.2% of the week’s market activity with 36.4% foreign investors participation.
According to AIB-AXYS, the decision of Equity Group to freeze dividend payments in 2019 and 2020 has seen its capital ratios enhanced.
Expansion in Congo is expected to grow the Equity Group’s business by leveraging on its strength in lending to SMEs who form part of the mining and trade business in that country while expanding its reach to the corporates.
A high liquidity ratio of 59.3% positions the lender to take up any opportunities that may arise as the East African economy continues to recover.
The enactment of a dividend policy with a commitment to payout 30%-50% of all profit after tax is likely to increase investors’ sentiments on this banking stock.
KCB Group has doubled the growth of its loan book fuelling an increase in interest income with a share price target of KSh 52.45. But benefits from the Group’s merger with National Bank of Kenya may take longer to be realized given the tough operating environment.
Absa Group has a target share price of KSh 12.07 with tailwinds including growing non funded income, supported by forex trading income and introduction of new products.
The lender has excited the market with the introduction of new channels such as WhatsApp Banking and Timiza loans App.
While Standard Chartered Bank Kenya Limited has been riding on digital banking as a key driver of growth, the lender’s higher NPL ratio, which was higher than the industry average pre-pandemic, remains a source of concern.
NCBA Group is expected to solidify the presence of its various segments in the East African market. The Group retains its front in digital lending through platforms such as M-Shwari and Fuliza. But Asset quality remains worrisome with an NPL ratio of 16.1%. This may be further worsened by the lender’s exposure to the SME sector.
AIB-AXYS further notes that Co-operative Bank has a diverse loan book to shield growth despite the shutdown in some sectors of the economy. The lender has low exposure to the high-risk sectors that have been largely affected by the prevailing pandemic.
However, synergies from the acquisition of Jamii Bora is expected to take longer given the tough operating environment. The absorption of Jamii Bora’s bad loan book may thus take time to recover in a tough business environment.
Stanbic Holdings tailwinds include double-digit growth in deposit and expected growth in the loan book steered by an increase in corporate banking as well as secured personal lending segments.
The lender expects growth in non-funded income on the back of an increase in fees and commissions following the resumption of fees on mobile transactions.
The lender’s headwinds is an NPL ratio (12.8%) which will decrease its asset book quality and rising cost of risk due to a 54.8% increase in provisions.
Diamond Trust Bank has an increase in non funded income as the lender continues to grow its forex trading income. But increasing the cost to income ratio due to the high staff cost (38% of total cost) and growing NPLs ratio due to its exposure to high-risk sectors, are the lender’s headwinds.
I&M Holdings counter will ride on recovery in Mauritius as the rolling out of vaccines sees the tourism and hospitality industry recover. It has also had stable growth in the loan book and deposits despite a tough operating environment. However, its headwinds include elevated provisions due to exposure to risky sectors.
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