Equity Group Ranked Most Attractive Listed Bank In Kenya

Cytonn Investments has today released its H1’2022 Banking Sector Report, which ranks Equity Group Holdings 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 report-themed “Earnings Growth Signify Banking Sector Resilience” analyzed the H1’2022 results for the listed banks. “The Core Earnings per Share (EPS) for the listed banks recorded a weighted growth of 34.0% in H1’2022, from a weighted growth of 136.0% recorded in H1’2021 when the sector was recovering from a lower base. Additionally, the Asset Quality for the listed banks deteriorated, with the gross NPL ratio increasing marginally by 0.3% points to 13.0% in H1’2022, from 12.7% in H1’2021. The listed banks’ management quality on the other hand improved, with the Cost to Income ratio increasing by 3.5% points to 53.6%, from 57.1% recorded in H1’2021, as banks continued to reduce their provisioning levels.” Said Stellah Swakei, Investment Analyst at Cytonn Investments

Four key drivers shaped the Banking sector in H1’2022, namely; Regulation, Regional Expansion through Mergers and Acquisitions, Asset Quality, and Capital Raising.

“In H1’2022, listed banks continued to borrow from international institutions to not only strengthen their capital position but also boost their ability to lend to the perceived riskier Micro Small and Medium Sized Enterprises (MSMEs) segment. In the period under review, Equity Group received USD 165.0 mn (Kshs 18.6 bn) facility from the International Finance Corporation (IFC) in January 2022. Additionally, the International Finance Corporation (IFC) disclosed a plan to extend USD 150.0 mn (Kshs 18.0 bn) to KCB Group in form of a senior unsecured loan in August 2022. As for mergers and acquisitions, there was only one activity in H1’2022, but we expect to see Kenyan banks undertake more consolidation and continue diversifying into other African regions as they look to reduce their reliance on the Kenyan Market and distribute risks as well. In light of the above, KCB Group PLC, announced that it had entered into a final agreement with shareholders of Trust Merchant Bank (TMB) to acquire an 85.0% stake in the Democratic Republic of Congo (DRC)- based lender”, said Kevin Karobia, Investment Analyst at Cytonn Investments.

Equity Group maintained its rank at position 1 while KCB Group’s rank declined to position 4 in H1’2022 from position 2 in Q1’2022, mainly due to an increase in the bank’s NPL ratio to 21.4%, from 16.9% in Q1’2022. However, Co-operative Bank’s rank improved to position 2 in H1’2022 from position 4 in Q1’2022 attributable to the improvement in its Net Interest Margin to 8.4%, from the 8.3% recorded in Q1’2022, leading to an increase in the bank’s franchise value score.

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: