Lenders return to profitability
Market analysts say I&M Bank stock is the most undervalued stock among lenders at the Nairobi Securities Exchange (NSE) as are KCB and Absa banks.
Analysts at Bloomberg shows in a report that while I&M has high returns on equity, the lender has very low price to book ratio, compared to the bigger banks.
What this means is that the bank is achieving higher profitability on account of less assets compared to the likes of KCB and Equity Bank.
The analysts say Equity Bank is the most efficiently priced lender with the highest price to book ratio and high return on equity in the market.
“Generally the banking sector saw a return to huge profits boosted by reduced provisioning for bad loans,” said Eric Mokaya, an analyst at Mwango Capital said in a market report.
According to the Commercial Banks’ Credit Survey Report by the Central Bank of Kenya (CBK) for the quarter ended June 2021, profit before tax for the banking sector significantly increased by 133.3 per cent to Sh50.5 billion in second quarter of 2021.
Loan loss provisioning
This is from Sh21.7 billion in Q2’2020, attributable to a reduction in loan loss provisioning on improved business environment and economic recovery.
During the Bloomberg analysis I&M bank stock was trading at Sh21.55 per share on the NSE while Absa bank is trading Sh10.20. Equity Bank is trading at Sh49 a share compared to KCB which is trading at Sh45 a share.
Using the data, KCB comes out as the most profitable bankat the bourse due to the fact that it has the highest return on equity followed by Absa and Equity.
Equity Bank posted a profit of Sh17.9 billion in the first half of 2021 compared to Sh12 billion in the same period of 2019 while KCB made Sh15.3 billion in first six months of 2021, up from Sh12.7 billion, same period in 2019.
Only Stanbic Bank and NCBA Bank are planning to issue dividends this year refacing the cautious business environment as banks continue to deal with a huge load of bad loans from last year.
Stanbic is paying Sh1.7 a share while NCBA is paying Sh0.75 a share. The listed banks earned a combined Sh66 billion in interest income from government securities.
Standard Chartered Bank recorded a decline in comparison to both the first half of 2020 and first half of 2019.
Kenyans increased their deposits handing banks cheap money with deposits for 11 banks rising 13 percent to Sh3.9 trillion.
“There was sluggish growth in loan books with only 4 banks posting double-digit growth in loans,” said Mwango Capital with banks running for government securities.
The banks are also on an ambitious regional expansion spree with KCB, Equity Bank, I&M leading the charge with acquisitions.
National Bank of Kenya took a break from its loss making to record a Sh717 million profit from Sh381m loss in first half of 2020. The bank’s profitability rose 378 per cent compared to the same period in 2019.
Absa profits rose 9.5 times on the back of a 64 per cent drop in loan loss provisions. The performance shows a strong match to solid returns 2021 despite pandemic shocks.