FOR IMMEDIATE RELEASE
“ABSA BANK KENYA IS THE MOST ATTRACTIVE LISTED BANK AS PER CYTONN
INVESTMENTS Q3’2023 KENYA LISTED BANKING SECTOR REPORT”
Cytonn Investments has today released its Q3’2023 Banking Sector Report, which ranks Absa Bank 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 “Sustained Profitability Despite Challenging Business Environment” analysed the Q3’2023 results for the listed banks. “The core earnings per share (EPS) for the listed banks recorded a weighted growth of 11.2% in Q3’2023, compared to a weighted growth of 36.3% recorded in Q3’2022, an indication of sustained performance despite the tough operating environment occasioned by elevated inflationary pressures experienced during the period. The performance in Q3’2023 was supported by a 21.3% growth in net interest income coupled with a 17.0% growth in non-funded income. However, the asset quality of listed banks deteriorated, with the weighted average Gross Non-Performing Loan ratio (NPL) increasing by 0.9% points to 13.1%, from 12.2% recorded in Q3’2022. We note that the NPL ratio still remains 2.2% points above the 10-year average of 11.1%.” Said Duncan Muema, Investment Analyst at Cytonn Investments.
Three key drivers shaped the Banking sector in Q3’2023, namely; Regulation, Regional Expansion through Mergers and Acquisitions, and Asset Quality.
“In Q3’2023, the banking sector continued to advance the risk-based lending model, with 33 banks having their models approved as of May 2023. As for mergers and acquisitions, activities increased with three completed acquisitions. In light of that, in January 2023, the Central Bank of Kenya (CBK) announced that Commercial International Bank (Egypt) S.A.E. (CIB) had completed the acquisition of an additional 49.0% shareholding in Mayfair CIB Bank Limited (MBL) at Kshs 5.0 billion, following the earlier acquisition of a 51.0% stake in MBL announced in April 2020, making MBL a fully owned subsidiary of CIB. Additionally, Equity Group Holdings Plc., through Equity Bank Kenya Limited (EBKL), announced that it had completed the acquisition of certain assets and liabilities of the local bank, Spire Bank Limited, after obtaining all the required regulatory approvals. Also, in March 2023, the Central Bank of Kenya (CBK) announced that Premier Bank Limited Somalia (PBLS) had completed the acquisition of 62.5% of First Community Bank Limited (FCB) effective March 27, 2023. On May 2023, the Central Bank of Kenya (CBK) announced the acquisition of 20.0% stake in Credit Bank Plc by Shorecap III, LP a Private Equity fund registered under the laws of Mauritius, with Equator Capital Partners LLC as the managers of the fund. The value of the deal was not disclosed by the CBK; however, Shorecap III, LP, will take over 7,289,928 ordinary shares, which constitute 20.0% of the ordinary shares of the bank. Additionally, Equity Group Holdings plc (EGH) announced that it had completed the acquisition of 99.1% stake in Compagnie Generale De Banque (Cogebanque) Plc Limited through the purchase of 183,854 shares at a rate of 297,406 Rwandan Francs per share on December 2023 taking it a step closer merging the business of Cogebanque with its Rwandan subsidiary, Equity Bank Rwanda plc. Concurrently, EGH proposed to purchase all outstanding shares from the other shareholders of Cogebanque, aiming to own up to 100% of Cogebanque’s issued shares. Notably, On September 27, 2023, the NCBA Group declared its plan to purchase a 100% share in AIG Insurance. AIG Insurance is a well-established company in Kenya, having been in operation for over 50 years, providing general insurance services to corporations, SMEs, and individuals. Currently, the NCBA Group holds a minority stake in AIG Insurance and intends to negotiate with AIG Inc., the majority stakeholder, to acquire the remaining shares. This acquisition is part of NCBA Group’s strategy to broaden its bancassurance operations, transforming it into a universal bank that caters to all the financial needs of its customers. The acquisition is contingent upon the necessary due diligence, approval from the boards of NCBA, AIG Kenya, AIG Group, and the relevant banking, insurance, and other regulatory authorities.” Said Kennedy Waweru, the Investment Analyst Coordinator at Cytonn Investments.
ABSA Bank rose to position 1 in Q3’2023, up from rank number 3 in Q3’2022, mainly supported by strong franchise and intrinsic value score, attributable to improvement in the bank’s management quality and earning quality, with the return on average equity improving by 2.5% points to 25.8% in Q3’2023, up from 23.2% registered in Q3’2022. Additionally, the cost to income ratio without LLPs declined by 1.0% points to 38.7% in Q3’2023, from 39.7% in Q3'2022. Notably, ABSA’s Net Interest Margin increased by 1.3% points to 8.8% in Q3’2023 from 7.6% in Q3’2022. Stanbic Bank improved the most having climbed 4 places to rank at position 5 in Q3’2023, up from position 9 in Q3’2022 mainly driven by a 2.3% points growth in return on average equity to 21.4% in Q3’2023 from 19.1% in Q3’2022. Additionally, the cost to income ratio without LLPs declined by 2.2% points to 43.2% in Q3’2023, from 45.4% in Q3'2022. Notably, the bank’s Net Interest Margin increased by 1.6% points to 7.8% in Q3’2023 from 6.2% in Q3’2022. On the other hand, Equity Group slid 4 places to rank at position 6 in Q3’2023, down from position 2 in Q3’2022, mainly due to a deterioration in the group’s asset quality as the gross NPL ratio rose to 13.6%, from the 9.5% recorded in Q3’2022. In addition, Equity Group registered a deterioration in operating efficiency, with the cost-to-income ratio with LLPs increasing by 8.2% points to 64.8% from 56.6% recorded in Q3’2022, while the cost-to ratio without LLPs also increased by 3.1% to 50.2% from 47.1% in Q3’2022.
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:
|
Cytonn Report: Listed Banks Q3’2023 Rankings |
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|
Bank |
Franchise Value Rank |
Intrinsic Value Rank |
Weighted Rank |
Q3’2022 |
Q3’2023 |
|
Absa Bank |
2 |
2 |
2.0 |
3 |
1 |
|
Coop Bank |
1 |
4 |
2.8 |
3 |
2 |
|
I&M Holdings |
5 |
3 |
3.8 |
5 |
3 |
|
KCB Group |
8 |
1 |
3.8 |
1 |
3 |
|
Stanbic Bank |
4 |
5 |
4.6 |
9 |
5 |
|
Equity Bank |
6 |
6 |
6.0 |
2 |
6 |
|
SCBK |
3 |
9 |
6.6 |
7 |
7 |
|
NCBA Group |
7 |
8 |
7.6 |
6 |
8 |
|
DTBK |
10 |
7 |
8.2 |
8 |
9 |
|
HF Group |
9 |
10 |
9.6 |
10 |
10 |
Table 2: Cytonn’s Q3’2023 Listed Banks Earnings and Growth Metrics
|
Cytonn Report: Listed Banks Performance in Q3’2023 |
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|
Bank |
Core EPS Growth |
Interest Income Growth |
Interest Expense Growth |
Net Interest Income Growth |
Net Interest Margin |
Non-Funded Income Growth |
NFI to Total Operating Income |
Growth in Total Fees & Commissions |
Deposit Growth |
Growth in Government Securities |
Loan to Deposit Ratio |
Loan Growth |
Return on Average Equity |
|
Equity Group |
5.3% |
32.0% |
58.4% |
21.3% |
5.6% |
36.9% |
44.3% |
36.6% |
19.9% |
4.1% |
70.0% |
25.5% |
21.8% |
|
NCBA Group |
14.4% |
21.1% |
35.3% |
11.7% |
6.0% |
(8.0%) |
44.4% |
11.9% |
18.6% |
(2.9%) |
56.3% |
16.0% |
18.4% |
|
KCB Group |
0.4% |
36.4% |
77.9% |
21.6% |
6.8% |
38.7% |
36.1% |
65.7% |
79.6% |
37.5% |
63.3% |
38.1% |
20.2% |
|
SCBK |
11.8% |
28.5% |
(10.0%) |
34.5% |
8.5% |
(6.6%) |
27.9% |
19.0% |
4.5% |
(50.3%) |
48.0% |
5.5% |
22.7% |
|
Absa Bank |
14.9% |
33.5% |
62.2% |
26.0% |
8.8% |
6.4% |
27.0% |
21.2% |
26.1% |
(15.7%) |
93.4% |
14.3% |
25.8% |
|
Coop Bank |
7.6% |
12.9% |
41.3% |
2.5% |
8.4% |
2.1% |
38.5% |
7.8% |
0.2% |
1.5% |
87.3% |
12.8% |
22.3% |
|
Stanbic Holdings |
32.7% |
48.2% |
63.2% |
42.4% |
7.8% |
23.0% |
41.0% |
22.7% |
14.3% |
(41.3%) |
82.1% |
5.9% |
21.4% |
|
I&M Holdings |
14.3% |
27.5% |
41.5% |
18.4% |
6.2% |
21.2% |
35.9% |
16.9% |
30.6% |
14.6% |
71.4% |
24.3% |
15.9% |
|
DTBK |
5.2% |
33.0% |
51.5% |
19.6% |
5.4% |
33.9% |
31.4% |
25.2% |
27.3% |
(4.5%) |
63.2% |
18.7% |
10.0% |
|
HF Group |
283.9% |
20.3% |
19.1% |
21.4% |
5.4% |
20.6% |
32.2% |
38.5% |
12.9% |
10.9% |
87.8% |
9.3% |
5.3% |
|
Q3'23 Mkt Weighted Average* |
11.2% |
29.7% |
47.9% |
21.3% |
7.0% |
17.0% |
37.7% |
27.7% |
24.4% |
(4.3%) |
70.6% |
19.1% |
21.1% |
|
Q3'22 Mkt Weighted Average* |
36.3% |
16.4% |
19.7% |
17.6% |
7.3% |
30.1% |
38.1% |
16.3% |
9.8% |
6.5% |
73.7% |
17.1% |
24.2% |
|
*Market cap weighted as at 22/12/2023 |
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|
**Market cap weighted as at 02/12/2022 |
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Key takeaways from the table include:
- The listed banks recorded an 11.2% growth in core Earnings per Share (EPS) in Q3’2023, compared to the weighted average growth of 36.4% in Q3’2022, an indication of sustained performance despite the tough operating environment experienced in Q3’2023 on the back of elevated inflationary pressures. The performance during the period was mainly supported by a 21.3% weighted average growth in net interest income, coupled with a 17.0% weighted average growth in non-funded income,
- Investments in government securities by listed banks reduced significantly in Q3’2023, having recorded a market weighted average decline of 4.3%, a reversal from the 6.5% growth recorded in Q3’2022. The declining investment in Kenya government securities is partly attributable to the increased perceived risk of default by the government, mainly on the back of high debt sustainability concerns given the current high public debt stock as well as the impending Eurobond maturity in June 2024,
- The listed banks’ Net loans and advances to customers recorded a weighted average growth of 19.1% in Q3’2023, an increment from the 17.1% growth recorded in Q3’2022, an indication of increased lending despite the elevated credit risk following the continued implementation of risk-based lending by the banks,
- Interest income recorded a weighted average growth of 29.7% in Q3’2023, compared to 16.4% in Q3’2022. Similarly, interest expenses recorded a market-weighted average growth of 47.9% in Q3’2023 compared to a growth of 19.7% in Q3’2022. Consequently, net interest income recorded a weighted average growth of 21.3% in Q3’2022, an increment from the 17.6% growth recorded over a similar period in 2022, and,
- The listed banks recorded a 21.1% weighted average growth on return on average equity (RoaE), 3.1% points lower than the 24.2% growth registered in Q3’2022. Additionally, the entire banking sector’s Return On Equity (ROE) stood at 25.4%, a 1.8% points decrease from the 27.2% recorded in Q3’2022.
Source: Cytonn Research
Notes to the Editor:
Cytonn Investments is an independent investment management firm, with offices in Nairobi - Kenya and D.C. Metro - U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs 82.0 billion of investments and projects under mandate, primarily in real estate.
Cytonn Real Estate is Cytonn’s development affiliate, which is focused on developing institutional grade real estate targeted at specific institutional, high net-worth and Diaspora investors. Collective, Cytonn Investments, and Cytonn Real Estate manage over Kshs 82.0 billion of real estate projects.
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