An investor monitors trading on the electronic board at the NSE. A large
number of listed companies will soon be announcing their full-year
results for 2013. FILE
By Robert Bunyi
We are now entering the reporting season at the
stock market when a large number of listed companies will be announcing
their full-year results for 2013. A smaller number will also be
reporting half-year results.
Leading the pack will be financial sector
companies that are obligated under the law to have December 31 as their
financial year-end and are also required to publish their results by
March- for both listed and private firms.
It means that all companies regulated by the
Central Bank of Kenya, the Capital Markets Authority and the Insurance
Regulatory Authority are now busy finalising their accounts for 2013.
Given the central role that finance plays in any
economy, the health of the industry is going to be of great interest to
us all. First off in 2013 interest rate pressures were lessened as the
Central Bank (CBK) lowered its key benchmark rate delivering much needed
relief for the banking sector.
Typically in periods of high interest rates,
banks, more so the small lenders, suffer huge deposit cost pressures
some of which cannot be passed on to borrowers.
It is a nerve-racking time to be a treasurer in a
bank where you are constantly being bombarded by demands from depositors
for ever higher interest rates and at the same time your boss wants you
to somehow balance the books on a daily basis without losing money.
As interest rates decline there is an opportunity
to lower deposit rates first and thus expand interest rate margins. This
results in a brief period of strong earnings recovery and inevitably
comes with a public outcry for banks to behave more sensibly by lowering
the cost of loans.
So most banks will report healthy profit growth
for 2013 as compared to 2012 and for those listed on the exchange their
shareholders will on average pocket more gains.
Declining interest rates are also a boon for
insurance companies on two fronts. As rates decline, the performance of
their investment portfolios enjoy a turbo boost of sorts in tandem with
rise prices of their assets.
The stock market recorded a stellar year in 2013
as equity and bond prices rose particularly in the second half of the
year thanks to a peaceful election in addition to lower rates.
Clearly the foreign investors were much relieved
by the election outcome and dominated trading activity injecting much
needed liquidity into the equity market.
On the second front insurance companies benefit as
individuals and businesses acquire assets particularly via bank
financing where property insurance is mandated.
As economic activity picks up, all other forms of
insurance contracts start to gain traction in the marketplace and
underwriters then enjoy a period of healthy premium growth.
The big issue for the sector is operating costs,
as far too many underwriters operate at the industry margin earning low
returns on their shareholder funds.
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