In the banking sector, there was a significant increase in the Non-Performing Loans (NPL) in the review financial year compared to previous years and a notable decrease in earnings per share (EPS) which translated to a recede in the dividends paid out. The results were however not all bleak as balance sheets grew with an impressive margin amidst the COVID-19 headwinds that stimulated a significant investor participation in the banking sector during the period. We highlight some of them in this article.
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KCB Group Plc reported a 22.2% y/y decrease in EPS to KES6.11. The turn in profitability was mainly due to a slight doubling in Loan Loss Provision (LLP) to KES27.5Bn. Net Interest Income (NII) recorded a solid growth of 21.0% y/y to KES67.9Bn. The balance sheet grew 9.9% y/y to KES987.8Bn, propelled by growth in both deposits (driven by precautionary instincts due to COVID-19 shock) and loan book. During the period, the company rallied from KES38.75 at the beginning of the month and closed at KES41.3 accounting for a significant investor participation in the sector.
Equity Group reported an 11.6% y/y decrease in EPS to KES5.24. The drop in profitability was as a result of a quadrupling in LLP to KES26.6Bn. Its balance sheet grew by half its previous level to KES1,015.1Bn. Equity group benefited from its digital transformation that accounted for 63% of the total transactions being generated outside the branch network. Its 66.5% acquisition of Banque Commerciale Du Congo that widened the bank’s penetration in the regional market increased its customer deposits by 53% to KES740.8Bn, boosting investor confidence in the growth of the bank across the region.
The Co-operative Bank of Kenya reported a 22.8% decrease in EPS to KES2.34 due to a slight doubling in LLP to KES8.1Bn. Despite the drop in profitability, the balance sheet grew by 17.5% y/y to KES536.9Bn. Net loans to customers grew 7.5% y/y to KES286.6Bn and customer deposits grew 13.8% y/y to KES378.6Bn.
ABSA Bank Kenya Plc, as it marked its first anniversary since transition, reported a 47.7% y/y decrease in EPS to KES0.69. The turn in profitability was mainly caused by a 114.9% y/y increase in LLP to KES9.0Bn. The Group’s balance sheet was stable at KES379.4Bn and its customer’s deposit grew by 6.7% y/y to KES253.6Bn.
Broadly, five of the nine listed banks announced dividends, albeit at reduced levels. This had an effect of injecting some short-term price action which we expect to fade as the market fully prices in the dividend payment. The outlook for banks will be salient with normalized provisioning on the back of aggression that played out last year. Further, toxic loans are expected to peak near-term, more so as the pandemic is yet to be fully ironed out.
