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| Equity Bank Chief Executive Officer James Mwangi at a past function. |
- “At the end of this transition, we are going to have fewer, but stronger, more transparent and well-governed banking sector players,” Ms Nkukuu said.
A budget proposal to raise minimum capital could also trigger mergers and acquisitions or aggressive capital raising given that only 20 out of the 44 banks licensed could have immediately met the threshold.
Kenya’s top two banks have been particularly sharpening their claws as they seek to grow their market and bolster their capital base.
Kenya Commercial Bank (KCB) Group, the largest lender by assets, reported profit after tax for three months through March of Sh4.63 billion, boosted by increased interest earnings. This represented a 6.19 per cent rise. The bank’s profit fell behind its main competitor Equity Bank whose net profit rose 19.30 per cent to Sh5.13 billion, also supported by interest income for the first quarter of 2016.
This was a reversal of fortune of sort as KCB’s profitability rose by Sh2.7775 billion in 2015 in the same period, compared to Equity Bank which made Sh152 million more last year.
KCB whose total revenue stood at Sh19.6 billion last year took back its record as Kenya’s most profitable bank from Equity which made Sh17.3 billion.
Just a year before, Equity Bank had trounced KCB when it netted Sh17.15 billion profit for the year ended December 2014, higher than KCB which returned a Sh16.8 billion net profit.
Some analysts, however, project that KCB could trounce Equity in the year given the potential they hold in ability to grow.
Cytonn banking report puts KCB Group ahead in its quarter one report followed by Equity Bank Group based on an index that combines franchise value (accounting for 40 per cent) and intrinsic value (accounting for 60 per cent).
The report titled Transition continues to a new and different landscape analysed all listed banks in the Kenyan market so as to recommend to investors which lenders are the most stable from a franchise value and future growth opportunity perspective,’’ Ms Elizabeth Nkukuu, Cytonn chief investment officer said.
Equity Bank Group however emerged the best, based on franchise value alone over strong net interest margins, ratio of non-performing loans to total loans as well as coverage of the bad loans.
Cytonn says the banking sector is in a transition period with tighter regulation and predicts more capital raising, mergers and acquisition that may strengthen KCB. The bank plans to raise Sh10 billion through a rights issue to boost its thinning capital levels by creating an additional one billion new shares, part of which will be offered in a cash call within this year.
The lender may also benefit from the fall of Chase Bank which it has indicated that it might consider acquiring.
Equity Bank, which has been reported previously as having shown interest in acquiring some of the three banks that have been put under receivership by CBK (Dubai Bank, Imperial Bank and Chase Bank) may yet have its chance to consolidate its local position.
Witnessing consolidation
Finance Cabinet Secretary Henry Rotich reintroduced a proposal to raise the minimum capital requirement for banks from Sh1 billion to Sh5 billion in his budget statement urging Members of Parliament to pass the provision in the Finance Bill in view of recent turbulence in the banking sector.
The industry is already witnessing consolidation, including the acquisition of Giro Bank by I&M Bank and acquisition of a 51 per cent stake of Equatorial Commercial Bank by Mwalimu Sacco, while Oriental Commercial Bank has been purchased by Bank M of Tanzania.
“At the end of this transition, we are going to have fewer, but stronger, more transparent and well-governed banking sector players,” Ms Nkukuu said.
Cytonn puts Co-operative Bank of Kenya as third with Barclays Bank of Kenya emerging fourth, and I&M Bank ranked fifth.
Diamond Trust Bank declined three positions to position 6, mainly as a result of a drop in franchise ranking due to lower Return on Equity of 16.0 per cent, compared to the industry average of 18.6 per cent. It also ranked poorly in revenue diversification with non-interest income to total revenue of 20.5 per cent, against an industry average of 28.7 per cent.
CfC Stanbic declined three positions to position 9, affected by both poor franchise and total return score. The low franchise score was due to a low net interest margin of 5.3 per cent against an industry average of 8.3 per cent.
Overall, the banking sector in Kenya experienced growth in quarter one 2016 in assets, deposits, profitability and products offering, and this was supported by increased use of alternative channels of distribution and the favourable macroeconomic environment.
The listed banks aggregate gross loans and advances grew by 14.6 per cent to Sh1.7 trillion in March 2016 from Sh1.5 trillion in March 2015.
Deposits grew by 11.5 per cent to Sh2.0 trillion in March 2016 from Sh1.8 trillion in March 2015 while total assets grew by 10.5 per cent to Sh2.8 trillion, from Sh2.5 trillion in the period under review.
The growth in Kenya’s banking sector can be attributed to increased use of alternative channels of distribution such agency, mobile and internet banking in deposit mobilisation and loan disbursement, branch network expansion strategy both in Kenya and in the region. Banks have also become more responsive to the needs of the market for convenience and efficiency in financials services delivery through channels such as mobile, internet and agency banking.
Daily Nation
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