Central Bank of Kenya rate hike spells worry for investors

Central Bank Rate Hike Spells Worry for Already High Lending Rates

The NSE All Share Index increased by 0.18% to 162.65 points, a minor change in direction for the week, as the index benefit from an improved performance on the local bourse. The market breadth exhibited this as the number of stocks that advanced, 22 stocks, outweighed the number of stocks that declined, 14 stocks; an exceptional result following the current market condition.

The NSE-20 Share Index continued to drop, shedding a mere 0.02% to 4744.66, as Market Capitalisation increased by 0.18% to KES 2.275Tn and equity turnover increased 15.08% to KES 655.70 Mn.

On the back of the Central Bank of Kenya (CBK) announcement to hike the benchmark rate, for the first time since April 2013, commercial banks dominate the equity headlines. MPC’s decision to increase the CBR, by 150 base points to 10%, confirmed speculation that banks will also increase their lending rates; which had remained steady, but high, at an average of 15.4% in the last twelve months.

High lending rates facilitated the posting of record profits for banks in the previous financial year, as CBK data showed lenders’ profit before tax grew 12.2% for FY2014. Strong cash and cash equivalent balances were also recognised across the industry, with mid and bottom tier banks slashing their dividends (by Sh22.6 billion), as commercial banks retained profits to boost their capital levels and finance growth strategies.

The general assumption is that this will do little to deflect investors, as the banking sector is seen as an equities safe haven amidst the current market performance. The Chase Bank Bond had reached an over subscription by Sh1.8 billion, bringing the total raised to Sh4.8 billion.

NSE Equity Market Highlights

Kenya Commercial Bank Ltd (NSE: KCB) was the most traded stock of the day, accounting for 24.01% of the total value traded. Equity Group Holdings Ltd. (NSE:EQTY) followed closely, responsible for 21.61% of daily trades.

Eaagads Ltd (NSE: EGAD) was the highest gaining stock of the day up 10.00% to KES 33.00. A close second, Standard Group Ltd. (NSE: SGL) gained 8.27% to KES 36.00; after rebounding from being the main losing stock the previous day.

Unga Group Ltd.(NSE: UNGA) was the main losing stock dropping by 5.26% to KES 45.00, after being the main gainer the previous day and closing at 47.50. Sasini Ltd. (NSE: SASN) dropped 3.80% to KES 15.20.

Foreign Investor Participation

Foreign investor participation edged upwards slightly during Wednesday’s trading session accounting for 68.96% of total turnover against 31.04% local participation. Investors shifted engaged in distributive activities; resulting in net outflows worth KES 19.81Mn compared to net outflows worth KES 18.65Mn on Tuesday.

Foreign investors accounted for 68.96% of the NSE turnover as compared to 66.44% on Wednesday.

Investors were dominant on the selling front recording net outflows worth KES 18.65Mn relative to net inflows worth KES 59.41Mn on Wednesday.

Kenya Commercial Bank Limited (NSE: KCB) was the day’s highest traded stock, recording a turnover of KES 140.64Mn to account for 21.45% of total market activity and 31.10% of foreign activity. Safaricom Limited (NSE: SCOM) followed with a turnover of KES 89.82Mn representing 13.70% of total market activity and 19.86% of foreign activity.

Cooperative Bank Limited (NSE: COOP) posted the day’s highest inflows of KES 8.99Mn, whilst Safaricom Limited (NSE: SCOM) posted the day’s highest outflows worth KES 18.24Mn.

Currency

Performance: The Kenyan Shilling had a mixed performance during Wednesday’s trading session. Following the upward 150 bps of the Central Bank Rate, the shilling gained by 0.89% against the US Dollar (USD) to register at 97.00; with the allure of shilling backed assets offsetting pressure on the pair.

The Central Bank indicated that they were also mopping up a further KES 21 Bn in excess liquidity. The shilling shed against the Sterling Pound by 0.23% to 150.62 as data indicated that the UK industrial production went up by 0.4, a higher bump up than was anticipated by economists.

On the regional front, the shilling registered its highest gains of the day against the Tanzanian (TZS) and the Ugandan (UGX) Shillings by 1.19% and 1.61% as they remain relatively vulnerable to continued dollar shocks.