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KCB Group Most Attractive Listed Bank, Cytonn

BY Soko Directory Team · December 14, 2021 10:12 am

KEY POINTS

KCB Group recorded an improvement in the overall ranking, coming in at position 1 from position 3 in H1’2021, attributable to a decline in the bank‘s Gross NPL ratio to 13.7 percent, from the 14.4 percent recorded in H1’2021.

KCB Group has been ranked by Cytonn as the most attractive bank in Kenya, supported by a strong franchise value and intrinsic value score across 13 different metrics.

The franchise score measures the broad and comprehensive business strength of a bank while the intrinsic score measures the investment return potential.

The report, themed “Banking Sector Recovers due to Improved Asset and Management Quality” analyzed the Q3’2021 results of the listed banks.

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It determined that the Asset Quality for the listed banks improved in Q3’2021, with the gross NPL ratio declining by 0.4 percentage points to 12.0 percent, from 12.4 percent in Q3’2020.

This led to an increase in the KCB Group’s franchise value score, coupled with an improvement in the bank’s Cost to Income ratio, which recorded a 2.0 percent decline to 55.2 percent from 57.2 percent recorded in H1’2021.

Co-operative Bank’s rank improved to position 6 from position 8 in H1’2021, attributable to an increase in the bank’s coverage ratio to 65.5 percent, higher than the 63.5 percent recorded in H1’2021.

The bank’s Net Interest Margin ratio also increased to 8.5 percent, which was the highest in the listed banking sector.

I&M Holdings’ rank declined to position 3 after being ranked position 1 six times in a row, mainly due to a deterioration in the bank’s Cost to Income ratio to 62.1 percent, from 56.3 percent recorded in H1’2021.

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NCBA Group’s rank declined to position 7 from position 5 in H1’2021, attributable to a deterioration in the bank‘s asset quality, as the Gross NPL ratio rose to 17.0 percent, from the 16.7 percent recorded in H1’2021.

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 Q3’2021 Listed Banks Earnings and Growth Metrics

“Despite the marginal improvement in the asset quality, the NPL ratio remains higher than the 10-year average of 8.1 percent,” said Cytonn Investments in a statement.

The listed banks’ management quality also improved, with the Cost to Income ratio improving by 12.0 percentage points to 58.1 percent, from 70.1 percent recorded in Q3’2020, as banks continued to reduce their provisioning levels following the improved business environment during the period.

Consequently, Core Earnings per Share (EPS) recorded a weighted growth of 102.0 percent in Q3’2021, from a weighted decline of 32.4 percent recorded in Q3’2020.

“The performance is however skewed by the strong performance from ABSA, NCBA Group, and KCB Group, which recorded core EPS growths of 328.3 percent, 159.0 percent, and 131.4 percent, respectively”, said Ann Wacera, Senior Investment Analyst at Cytonn Investments.

Four key drivers shaped the Banking sector in Q3’2021, namely; Regulation, Regional Expansion through Mergers and Acquisitions, Asset Quality, and Capital Raising.

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Mergers and Acquisitions remained a key theme in Q3’2021, with the current environment providing opportunities for bigger banks with an adequate capital base to expand and take advantage of the low valuations in the market to further consolidate and buy out smaller banks.

The COVID-19 pandemic exposed the weak banks in the industry which might need to be acquired by larger banks in order to boost their capital adequacy and liquidity ratios to the required minimum statutory levels.

As such, continued consolidation in the banking sector should be expected as the weaker banks are merged with the big banks to form a stronger banking system.

“We also expect to see Kenyan banks continue to diversify into other African regions as they look to reduce their reliance on the Kenyan Market,” Jane Wambui, Assistant Analyst at Cytonn Investments concluded.

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory