Cytonn Investments has today released its Q3’2019 Banking Sector Report, which ranks KCB Group as the most attractive bank in Kenya, supported by a strong franchise value and intrinsic value score.
The franchise score measures the broad and comprehensive business strength of a bank across 13 different metrics, while the intrinsic score measures the investment return potential.
The Banking report themed “Higher Net Interest Margins and Consolidation to Drive Growth in the Post Rate Cap Era”, analyzed the Q3’2019 results of the listed banks.
“We note that the increased emphasis on revenue diversification by banks seems to be bearing fruit, with the listed banking sector’s average Non-Funded Income (NFI) improving year on year as seen in the Q3’2019 figures, where the average NFI growth was 15.8 percent, higher than the 5.9 percent growth witnessed in Q3’2018. Increased revenue diversification is expected to continue going forward leveraging on digital innovations”, said David Gitau, Investment Analyst at Cytonn Investments.
There are five key drivers in the sector, namely Regulation, Revenue Diversification, SME Focused Lending, Consolidation and Asset Quality in this Banking report.
“On the regulatory front, the interest rate cap was repealed following the Presidents refusal to assent the Finance Bill 2019 and the lack of the two-thirds majority quorum needed to debate the issue which resulted in the failure to overturn the recommendations by President Uhuru thus allowing the repeal of the interest rate cap during the last parliamentary sitting on November 5th, 2019. We expect more forays by banks into the SME focused lending, as players refocus on the core operations to take advantage of the removal of interest rate cap”, added David.
KCB Group Plc took the top position in the rankings, from a franchise value and a weighted score of both franchise and future growth opportunity perspective having a better capacity to generate profits from its core business.
Diamond Trust Bank Kenya took the top position from a future growth opportunity perspective; however, it had a weak franchise score moving it to position 7 on the weighted score, and, HF came in 10th position on the back of weak franchise rankings scores as well as a non-promising future growth opportunity perspective as a result of poor asset quality and lack of cost-efficiency.
Table 1: Listed Banks Franchise and Intrinsic Ranking
The table below ranks banks based on franchise and intrinsic ranking which compares metrics for efficiency, asset quality, diversification, growth, and profitability, among other metrics.
Table 2: Cytonn’s Q3’2019 Listed Banks Earnings and Growth Metrics
Takeaways from the table above include: