FOR IMMEDIATE RELEASE
“ABSA BANK RANKED AS MOST ATTRACTIVE LISTED BANK, AS WELL AS THE MOST IMPROVED BANK - AS PER CYTONN INVESTMENTS FY’2022 KENYA LISTED BANKING SECTOR REPORT”
April 23rd 2023
Cytonn Investments has today released its FY’2022 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 “Banks Maintain Strong Profitability Despite Challenging Business Environment” analysed the FY’2022 results for the listed banks. “The Core Earnings per Share (EPS) for the listed banks recorded a weighted growth of 26.6% in FY’2022, compared to a weighted growth of 82.9% recorded in FY’2021, indicating the banking sector’s continued resilience despite the tough operating business environment occasioned by elevated inflationary pressures. The performance in FY’2022 was mainly attributable to a 31.6% growth in non-funded income coupled with a 19.2% growth in net interest income. Additionally, the listed banks’ Asset Quality improved with weighted average NPL ratio declining by 0.6% points to 11.7% in FY’2022, from 12.3% in FY’2021. We however note that despite this improvement in the asset quality, the NPL ratio remains higher than the 10-year average of 8.8%.” Said Gideon Sang, Investment Analyst Coordinator at Cytonn Investments.
Four key drivers shaped the Banking sector in FY’2022, namely; Regulation, Regional Expansion through Mergers and Acquisitions, Asset Quality, and Capital Raising.
“In FY’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% 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 at November 2022. As for mergers and acquisitions, there were reduced activities in FY’2022 with only one completed acquisition. In light of the above, KCB Group announced that it had completed acquisition of the 85.0% stake in Trust Merchant Bank (TMB), after receiving all the regulatory approvals. The acquisition made KCB Group the second Kenyan banking group to enter the DRC banking market after Equity Group Holdings, with KCB Group now having its presence in seven countries. However, 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. Notably, there are three activities so far in 2023, with Equity Group Holdings PLc, through Equity Bank Kenya Limited (EBKL) announcing that it had completed the acquisition of certain assets and liabilities of the troubled local Bank, Spire Bank Limited after obtaining all the required regulatory approvals. Additionally, the Central Bank of Kenya (CBK) announced that Commercial International Bank (Egypt) S.A.E (CIB) had completed acquisition of additional 49.0% shareholding of Mayfair CIB Bank Limited (MBL) at Kshs 5.0 bn following the earlier acquisition of 51.0% stake in MBL announced in April 2020. Further, the Central Bank of Kenya (CBK) announced that Premier Bank Limited Somalia (PBLS) had completed acquisition of 62.5% shareholding of First Community Bank Limited (FCB) effective 27 March 2023,”Said Christopher Aura, Investment Analyst at Cytonn Investments.
ABSA Bank’s rank improved to position 1 in FY’2022 from position 4 in FY’2021, majorly driven by a strong franchise score attributable to an improvement in the bank’s management quality and asset quality. On the other hand, I&M Group’s rank declined to position 5 in FY’2022, from position 1 in FY’2021, mainly due to a deterioration in the Group’s asset quality. NCBA Group’s rank also improved to position 6 in FY’2022, from position 8 in FY’2021, mainly attributable to improvement in the asset quality during the year, coupled with increase in the Group’s Net Interest Margin which increased to 5.9%, from the 5.7% recorded in FY’2021.
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 FY’2022 Rankings |
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|
Bank |
Franchise Value Rank |
Intrinsic Value Rank |
Weighted Rank |
FY'2021 |
FY’2022 |
|
ABSA |
1 |
4 |
2.8 |
4 |
1 |
|
Equity Group Holdings Ltd |
4 |
3 |
3.4 |
4 |
2 |
|
KCB Group Plc |
7 |
1 |
3.4 |
3 |
3 |
|
Co-operative Bank of Kenya Ltd |
3 |
5 |
4.2 |
2 |
4 |
|
I&M Holdings |
2 |
6 |
4.4 |
1 |
5 |
|
NCBA Group Plc |
8 |
2 |
4.4 |
8 |
6 |
|
SCBK |
5 |
8 |
6.8 |
6 |
7 |
|
Stanbic Bank/Holdings |
6 |
9 |
7.8 |
7 |
8 |
|
DTBK |
9 |
7 |
7.8 |
9 |
9 |
|
HF Group Plc |
10 |
10 |
10 |
10 |
10 |
Table 2: Cytonn’s FY’2022 Listed Banks Earnings and Growth Metrics
|
Cytonn Report: Listed Banks Performance in FY’2022 |
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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 |
|
HF Group |
138.9% |
8.8% |
0.7% |
18.2% |
5.0% |
63.5% |
28.9% |
(1.9%) |
5.5% |
30.4% |
91.2% |
4.6% |
3.1% |
|
DTB-K |
53.9% |
18.2% |
23.5% |
14.5% |
5.3% |
43.5% |
28.3% |
19.9% |
16.9% |
5.8% |
66.5% |
15.1% |
10.0% |
|
NCBA |
34.8% |
12.7% |
11.5% |
13.5% |
5.9% |
36.8% |
49.7% |
5.0% |
7.0% |
4.8% |
55.5% |
14.3% |
17.2% |
|
I&M |
34.3% |
12.9% |
18.0% |
9.9% |
6.3% |
45.7% |
35.7% |
20.7% |
5.3% |
(9.9%) |
76.4% |
13.3% |
15.3% |
|
ABSA |
34.2% |
27.5% |
25.9% |
27.9% |
8.2% |
17.2% |
29.7% |
0.3% |
13.0% |
0.7% |
93.4% |
21.1% |
24.3% |
|
SCB-K |
34.0% |
14.3% |
(6.5%) |
18.1% |
7.0% |
13.5% |
34.6% |
(17.7%) |
5.1% |
10.6% |
50.0% |
10.7% |
22.1% |
|
CO-OP |
33.2% |
10.9% |
11.0% |
10.9% |
8.9% |
32.7% |
36.1% |
32.7% |
3.9% |
(5.9%) |
80.1% |
9.4% |
21.2% |
|
Stanbic |
25.7% |
27.3% |
15.2% |
31.8% |
5.9% |
23.7% |
40.9% |
(0.5%) |
19.5% |
42.9% |
87.8% |
16.4% |
15.3% |
|
KCB |
19.5% |
15.3% |
27.1% |
11.5% |
7.5% |
39.8% |
33.3% |
18.6% |
35.6% |
2.7% |
76.0% |
27.8% |
22.0% |
|
Equity |
15.1% |
26.8% |
31.7% |
25.0% |
7.2% |
34.5% |
41.1% |
26.2% |
9.7% |
(4.1%) |
67.2% |
20.2% |
26.7% |
|
FY'22 Mkt Weighted Average* |
26.6% |
19.7% |
20.1% |
19.2% |
7.2% |
31.6% |
37.7% |
13.8% |
13.7% |
3.1% |
71.8% |
18.1% |
21.8% |
|
FY'21 Mkt Weighted Average** |
82.9% |
13.8% |
11.5% |
15.2% |
7.1% |
10.9% |
34.7% |
16.6% |
13.5% |
18.1% |
69.7% |
13.5% |
20.2% |
|
*Market cap weighted as at 20/04/2023 |
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|
**Market cap weighted as at 14/04/2021 |
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Key takeaways from the table include:
- The listed banks recorded a 26.6% growth in core Earnings per Share (EPS) in FY’2022, compared to the weighted average growth of 82.9% in FY’2021, an indication of sustained performance despite the tough operating environment experienced in FY’2022. The performance during the period was mainly driven by a 31.6% weighted average growth in non-funded income coupled with a 19.2% weighted average growth in net interest income,
- The listed banks continued to implement their revenue diversification strategies as evidenced by non-funded income weighted average growth of 31.6% in FY’2022 compared to a weighted average growth of 10.9% recoded in FY’2021. The performance was largely supported by increase in foreign exchange income recorded by the banks during the year as a result of increased dollar demand in the country,
- Listed banks investments in government securities slowed down in FY’2022 having recorded a market weighted average growth of 3.1% compared to a 18.1% growth recorded in FY’2021. The slowed growth of investment in Kenya government securities was partly attributable to the increased perceived risk of default by the government coupled with high debt sustainability concerns given the current high public debt stock as well as the upcoming Eurobond maturity in the next fiscal year,
- The listed banks Net loans and advances to customers recorded a weighted average growth of 18.1% in FY’2022 compared to 13.5% in FY’2021, an indication of increased lending despite the elevated credit risk, and,
- Interest income recorded a weighted average growth of 19.7% in FY’2022, compared to 13.8% in FY’2021. Similarly, interest expenses recorded a market weighted average growth of 20.1% in FY’2022 compared to a growth of 11.5% in FY’2022. As such, the net interest income recorded a weighted average growth of 19.2% in FY’2022 compared to 15.2% in FY’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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