“Listed Banks post mixed performance, upbeat about 2019”
Our 2018 banking sector review and 2019 outlook report provides a detailed review of the main factors that affected the banking sector in 2018 and gives our expectations for 2019.
The key themes for 2018 were interest rate caps, asset allocation, asset quality, financial reporting and consolidation.
On interest rates, the Kenya parliament voted to remove the floors on deposits, a move we have noted as insignificant in increasing private sector credit.
In terms of the outlook, we expect the interest rate debate to continue especially following a proposed Bill to amend lending rates and following court action to declare the current caps as unconstitutional.
Asset quality deteriorated in 2018 and this we expect to further reduce credit to the private sector as well as increase banks’ focus on credit risk.
Banks generally showed preference for government securities over private sector lending but there were a few exceptions mentioned in the report.
2018 was the year that International Financial Reporting Standards (IFRS 9) was implemented and this had an impact mainly on loan loss provisioning and income recognition.
Consolidation was another key theme of the banking sector with the main highlight being the proposed merger between Commercial Bank of Africa (CBA) and NIC.
The report delves into the financial performance of the main listed banks highlighting key performance metrics.
Our top picks amongst the covered banks were Stanbic Bank and KCB Group with Profit After Tax (PAT) growth rates of 46.5% and 21.8% respectively.
We are impressed particularly by the performance of Stanbic that recorded double digit growth in both interest income and Non-Funded income.
The bank took what appears to be a contrarian strategy by growing its loan book while reducing its holdings of government securities.
On the bottom end of our performance chart was Commercial Bank of Africa that recorded a 9.7% decline in PAT during the period.
Finally in conclusion, we maintain our positive view on the banking sector and believe that it presents good investment value in spite of the challenges it faces today and in the near and medium term. Download Report