The release of first quarter results (1Q21) in the banking sector has been pertinent in the bourse in this review period. The spotlight was on KCB and Equity Group which received different investor reactions that saw foreigners exiting KCB and accumulating Equity.
Equity Group reported an impressive 63.8% y/y rise in Earnings per Share (EPS) to KES 2.3. This performance was on the back of substantial decrease in loan loss provisions (-59.3% y/y) coupled with 28.4% y/y rise in Net Interest Income (NII). Interest expense on customer deposits however, weighed down on NII, rising 63.5% y/y to KES 4.2Bn. Non-Interest Revenue (NIR) grew 30.7% y/y to KES 10.9Bn. Borrowed funds went up 68.2% y/y to KES 88.4Bn on acquisition of development finance institution (DFI) funding to boost liquidity that stands at 60.6%. The Group’s subsidiaries in Rwanda and Uganda now deliver above the cost of capital returns giving a positive indication of their revenue potential in the future. The counter’s currency mix – that is close to the 50:50 mark with 41% held in foreign currency – has the Group at a better vantage point to deal with currency shocks.
KCB Group reported a 1.8% y/y rise in EPS to KES 1.99. The growth in profitability was mainly due to 11.1% y/y increase in NII to KES 16.7Bn. This was however, subdued by a 20.0% y/y drop in NIR to KES 6.3Bn on slowdown in digital lending and free service wavers. Pre-provisions operating expense remained reduced marginally at KES 11.1Bn (-0.6% y/y) as loss provisions went down 1.3% y/y to KES 2.9Bn. The balance sheet grew 3.2% y/y to KES 977.5Bn driven by the KES 7.8Bn y/y rise in loans to KES 597.1Bn coupled with 1.2% y/y rise in customer deposits to KES 749.4Bn. Government securities grew 4.7% y/y to KES 212.1Bn as borrowings rose to KES 36.0Bn (+63.7% y/y, -2.9% q/q). The Group’s plan to acquire up to 100% of Banque Populaire du Rwanda and BancABC is expected to add approximately KES 64.0Bn to the Group’s balance sheet.
The market reacted positively to Safaricom’s announcement of winning a bid for a telecommunication license in the Federal Democratic Republic of Ethiopia. The share price touched record highs in the review period, although we expect range-bound trading as the project is set to kick off next year and more is yet to be disclosed on the Global Partnership for Ethiopia’s strategy of entry and operation. Safaricom pointed out the Ethiopian venture will not affect their dividend payout ratio which stands at 80% of net income and the consortium is expected to bid for a separate mobile money license on the Ethiopian Communication Authority’s greenlight. Intense competition from Ethio Telecom, heavy expenditure and a gridlock in accessing currency to repatriate dividends are likely headwinds the consortium might face in this new venture.
Other notable corporate announcements include EABL early redemption of the KES 6.0Bn Medium Term Note as part of the counter’s balance sheet management and optimization of costs of funds. Scangroup announced a delay in publication of FY20 results occasioned by the ongoing investigation that followed the recent senior management changes. We still expect the corporate announcements to dictate price actions at the bourse in the near term.