Standard Chartered Posts 39.2 percent Drop in After tax Profits

Standard Chartered Bank Kenya Ltd (NSE: SCBK), released their FY15 results for the period ended 31st December 2015, with the following highlights:

Decline in Profitability of 39.2%; Impacted by the 38.2% Increase in Operating Expenses

SCBK posted a drop of 39.2% in after- tax profits to KES 6.34 billion choked by a 38.2% rise in operating expenses to KES 16.21 billion from KES 11.73 billion.

Total interest income was up 3.4% to KES 22.88 billion despite a 6.2% contraction in its loan book. Interest expenses edged up by 12.9% to KES 4.76 billion driven by an 11.7% uptick in customer deposits to KES 172.04 billion. Overall, NIMs declined by 62bps y-o-y to 8.2%.

As at the end of the financial year 2015, non-funded income contribution to total income dipped to 28.6%, largely attributable to a 66.3% drop in other income to KES 0.77 billion.

Worth noting is that the other income in FY14 was non-recurrent; accrued from a one off gain from an undisclosed property sale, thus resulting in the waning of income from other sources.

Worsened Cost-to-Income Ratio of 44.6% against the Previous Year’s 40.0%

Total operating expenses surged by 38.2% to KES 16.21 billion driven by a 274.2% rise in the loan loss provisions and a 14.2% increase in the other operating expenses.

Book Quality Takes a Hit in 2015; NPL’s Shoot up by 31.4%

NPL coverage ratio declined 595bps y-o-y to 40.8% as loan loss provisions rose by 274.2% to KES 4.90 billion. The rise in NPLs crowded out the increased provisioning made by the bank in regards to the loan losses.

Customer deposits rose by 11.7% to KES 172.04 billion, whilst the loans and advances dipped by 6.2% to KES 115.13 billion. This resulted in a decline in the loan to deposit ratio from 79.7% (FY14) to 66.9% (FY15).

Stout Capital Adequacy Ratios

Contrary to most banks reporting strained capital ratios, SCBK reported improved ratios with the core capital/ TRWA at 17.53% (a rise of 172 bps) and the total capital/TRWA at 21.16% (a rise of 134bps). Both ratios remained above the statutory minimum of 10.5% and 14.5%, respectively.

Valuation

The share is currently trading at P/E and P/B of 11.32x and 1.69x in comparison to banking industry averages of 7.43x and 1.35x- the bank poses slightly overvalued. We issue a SELL recommendation with a fair value estimate of KES 218.29.

The company announced a dividend of KES 17.00 with the book closure slated for 22nd April 2016. This translated to a dividend yield of 7.5% and a payout ratio of 85.1%. The bank also issued a bonus issue of 1:9, subject to regulators and shareholders’ approval.

Article by Genghis Research.