DTB lending book ranked the best as National Bank trails

Cytonn Investments CEO Edwin Dande (left) with chief investment officer Elizabeth Nkukuu during the release of Cytonn banking sector report on June 29, 2015. PHOTO | DIANA NGILA 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Diamond Trust Bank has managed to keep share of non-performing loans at 1.43 per cent of its total loan book compared to National Bank of Kenya’s (NBK) 9.95 per cent.

Diamond Trust Bank (DTB) has the healthiest loan book with National Bank of Kenya ranked the worst among listed lenders, a report by investment management firm Cytonn shows.

DTB non-performing loans are 1.43 per cent of its total loan book compared to National Bank of Kenya’s (NBK) 9.95 per cent.

“Non-performing loans to total loans ratio is a measure of the percentage of a bank’s issued loans that are in default or close to being in default,” said Cytonn in the report.

Several international institutions including the International Monetary Fund and rating agency Moody’s have recently raised questions on the quality of the banking sector loan book and the adequacy of the cash set aside to absorb losses that may emanate from the bad loans.

I&M loan book quality was ranked second best followed by CFC Stanbic.

The Cytonn research, however, shows CFC Stanbic is the most attractive bank to investors based on 12 performance metrics measuring aspects as profitability, efficiency, growth, asset quality, liquidity, revenue diversification and capitalisation.

“CFC Stanbic ranked the highest overall, ranking high in revenue diversification and mobilisation despite being weighed down by its lower than industry average net interest margin,” said Cytonn.

CFC’s loan to deposit ratio of 86 per cent, against an industry average of 82 per cent, was the highest among listed lenders indicating the bank’s ability to convert customers’ savings to interest earning assets.

Despite the top ranking, CFC’s market value has shrunk 14 per cent in the last six months with a share trading at Sh106 at the Nairobi Securities Exchange.

Housing Finance (HF), which has shed 39 per cent of its value since the beginning of the year, was marked as the least attractive bank due to poor profitability, low net interest margins and liquidity challenges owing to its loans being higher than its deposits.

HF is a mortgage lender and was only allowed to operate current accounts, a source of cheap deposits, three years ago. HF’s loans to deposit ratio is 144.2 per cent indicating that it has loaned out more than the customer savings it holds.

NIC Bank is the only other lender whose loan book is larger than its deposits at 109 per cent.

Equity Bank recorded the best returns to shareholders capital with its return on average common equity (ROACE) of 31.65 per cent.

I&M Bank was ranked as the most efficient listed bank with a cost to income ratio of 32.2 per cent while NBK had the highest ratio at 67.1 per cent.

“We see many banks making an effort to be more efficient. Many have opted to restructure, most recently being Co-operative and National Bank,” said Cytonn’s chief investment officer, Elizabeth Nkukuu.