The Asset Quality for the listed banks deteriorated, with the gross NPL ratio increasing marginally by 0.1 percentage points to 12.3 percent in Q3’2022, from 12.2 percent in Q3’2021
The listed banks’ operational efficiency improved, with the Cost to Income without LLP ratio declining by 3.9 percentage points to 45.1 percent, from 49.0 percent recorded in Q3’2021, mainly as a result of continued adoption of alternative distribution channels that have seen banks reduce their operating expenses.
Cytonn Investments has released its Q3’2022 Banking Sector Report, which ranks KCB Group Plc 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 “Revenue Diversification Spurs Earnings Growth” analyzed the Q3’2022 results for the listed banks.
“The Core Earnings per Share (EPS) for the listed banks recorded a weighted growth of 36.7 percent in Q3’2022, compared to a weighted growth of 102.0 percent recorded in Q3’2021, indicating the banking sector’s continued resilience despite the tough operating business environment occasioned by elevated inflationary pressures.
The performance in Q3’2022 was mainly attributable to a 30.1 percent growth in non-funded income coupled with a 17.6 percent growth in net interest income.
Additionally, the listed banks’ operational efficiency improved, with the Cost to Income without LLP ratio declining by 3.9 percentage points to 45.1 percent, from 49.0 percent recorded in Q3’2021, mainly as a result of continued adoption of alternative distribution channels that have seen banks to reduce their operating expenses.
However, the Asset Quality for the listed banks deteriorated, with the gross NPL ratio increasing marginally by 0.1 percentage points to 12.3 percent in Q3’2022, from 12.2 percent in Q3’2021.” Said Kevin Karobia, Lead Investment Analyst at Cytonn Investments.
Four key drivers shaped the Banking sector in Q3’2022, namely; Regulation, Regional Expansion through Mergers and Acquisitions, Asset Quality, and Capital Raising.
“In Q3’2022, conversations around credit growth intensified, with the Central Bank of Kenya rolling out a Credit Repair Framework which will see commercial banks, microfinance banks, and mortgage finance companies provide a discount of at least 50.0 percent of the non-performing mobile phone digital loans outstanding as at end October 2022, and update the borrowers credit standing from non-performing to performing.
Additionally, the CBK is looking towards entirely shifting to the Risk-Based Pricing framework, with 23 banks having their models approved as of November 2022.
As for mergers and acquisitions, there were two activities in Q3’2022, 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.
Additionally, Equity Group Holdings Plc through Equity Bank (Kenya) Limited, announced that it had entered into an Assets and Liabilities purchase agreement with Spire Bank Limited for the purchase of certain assets and liabilities”, said Sang Gideon, Investment Analyst at Cytonn Investments.
KCB Group’s rank improved to position 1 in Q3’2022 from position 4 in H1’2022, majorly driven by a strong intrinsic score as well as an improvement in the group’s management quality.
On the other hand, Equity Group’s rank declined to position 2 in Q3’2022 from position 1 in H1’2022 attributable to a deterioration in operational efficiency and asset quality during the quarter as compared to H1’2022, coupled with a reduction in the Gross NPL Coverage which led to a decline in the bank’s franchise value score.
NCBA Group’s rank also improved to position 6 in Q3’2022, from position 9 in H1’2022, mainly attributable to improvement in the asset quality during the quarter, coupled with an increase in the Group’s Net Interest Margin which increase to 6.0 percent, from the 5.9 percent recorded in H1’2022.