Shareholders staring at reduced full year profits, with stocks of banks
in East African region falling to record lows. PHOTO | TEA GRAPHIC
By JAMES ANYANZWA
In Summary
- Banks in the region recorded a lacklustre third quarter earnings growth and their stocks fell to record lows.
Shareholders of East Africa’s listed banks are staring at
reduced full-year dividends, following a modest performance by most
lenders in the nine months to September 30.
Banks in the region recorded a lacklustre third quarter earnings
growth and their stocks fell to record lows in a difficult operating
environment triggered by depreciation of local currencies, rising
interest rates and collapse of some banks.
Market analysts said despite single digit inflation, interest
rates in the region have been on an upward trend, pushed by the tight
monetary policies adopted by regional central banks to shore up local
currencies.
“As a result of the US dollar strengthening against virtually
all currencies, East African currencies have fallen significantly in
value year to date,” said Teddy Pole, an investment analyst at AIB
Capital.
“The Ugandan shilling has suffered the most, losing 31 per cent
against the US dollar as at October 21, compared with 28 per cent for
the Tanzanian shilling, 13 per cent for the Kenyan shillings and 6 per
cent for the Rwandan franc,” he added.
However, despite significant losses in currency value, import
cover in these countries remains strong, averaging four months of
imports, according to the latest “Financial Sector Market Report”
released by AIB Capital Ltd.
A review of the performance of 10 listed banks in Kenya, eight
in Uganda’s and, one each in Rwanda and Tanzania showed that the
lenders’ net earnings for nine months to September 30 grew by an average
of five per cent to $585.42 million from $557.38 million over the same
period last year.
The growth in revenues was boosted by high interest rates charged on loans and advances.
The banks include CRDB of Tanzania, whose net profit grew to
Tsh38.75 billion ($17.48 million) from Tsh31.25 billion ($14.16
million), with interest income surging to Tsh127.2 billion($57.67
million) from Tsh98.23 billion ($44.53 million).
Bank of Kigali posted a 19.35 per cent growth in net earnings
from $6.2 million to $7.4 million, as interest income jumped 16 per cent
to $21.8 million from $18.8 million.
Kenya Commercial Bank’s profit after tax went up to Ksh13.57
billion ($130.41 million) from Ksh12.38 billion ($118.98 million) while
Equity Bank’s net profit grew to Ksh12.81 billion ($123.11million) from
Ksh11.21 billion ($107.73 million).
During the same period, Co-operative Bank’s profit after tax
grew to Ksh8.62 billion ($82.84 million), while Barclays Bank of Kenya
posted a 2.72 per cent growth to Ksh6.4 billion ($61.5 million).
I&M Bank and NIC Bank recorded 11.39 per cent and 7.8 per
cent growth in net earnings to Ksh4.37 billion ($41.99 million) and
Ksh3.59 billion ($34.5 million) respectively.
However, Standard Chartered Bank Kenya and CfC Stanbic bank
faced a reduction in profitability with their net earnings dropping 24
per cent and 36 per cent to Ksh6.22 billion ($59.77 million) and
Ksh2.75 billion($26.42 million) respectively.
“The majority of banks are seeing slowed growth and one of the
key reasons is how the economy is performing. We are expecting profits
to slow down at the end of the year and the banking stocks to be more
volatile,” said Daniel Kuyoh, senior investment analyst at Alpha Africa
Asset Managers.
“We have already started seeing many companies issue profit
warnings and going forward we expect to see a lot of management shake
ups, layoffs and shifts in strategy because of the changing business
environment,” added Mr Kuyoh.
In Kenya, the banking sector was further impacted by the
closure of Dubai Bank (Tier 3 bank) and Imperial Bank (Tier 2 Bank)
in quick succession, leading to a crisis of confidence in the sector,
particularly those in the mid to lower tier and raising concerns over
the regulator’s ability to effectively supervise the banking sector.
“Investors’ panic has resulted in banking stocks plummeting to
12 month lows. The rapid decline in banking stock prices over recent
weeks is a consequence of macroeconomic and market sentiments, hence has
little or no relationship with companies or the sector’s fundamentals,”
an analysts at AIB Capital said.
“This year has been a tough year for most of the banks because
of the high interest rates, which slowed borrowing and increased the
levels of non-performing loans. As a result, foreign banks are recording
diminishing profitability while growth for local banks is modest,
except the Equity Bank, KCB and Co-operative Bank, which recorded double
digit growth in profit,” said Eric Munywoki, research analyst at Old
Mutual Securities Ltd.
“The liquidation of the two banks [Dubai and Imperial] made a
lot of foreign investors sceptical about Kenya’s banking sector. All
this had an impact on the banking stocks in the equities market,” added
Mr Munywoki.
Nairobi Securities Exchange is home to the highest number of
listed banks, (11), excluding the cross-listed Kenyan banks compared
with five listed local banks in Tanzania, three in Uganda and one in
Rwanda.
According to the AIB Capital financial sector report, Kenyan
banks, on average, earn twice as much return on equity (ROE) and a
higher Return on Assets (ROA) as their regional peers due to high
efficiency and economies of scale.
Over the years, Kenyan banks have developed a strong propensity
towards innovation, leveraging technology such as mobile banking to
penetrate the mass market, particularly retail and the SMEs. Ugandan and
Tanzanian banks are the least diversified, with the lowest ratios of
non-interest revenues to total income.
As at June 2015, Tanzania had the highest ratio of non- performing loans.
These countries also have a significant large allocation of
funds towards loans and advances, representing around 57 per cent of
their assets.
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