Bank stocks lose Sh47bn on first day of trading after loan caps

Money Markets

Kenya Bankers Association (KBA) director of communications and public affairs Nuru Mugambi, chief executive officer Habil Olaka and director of research Jared Osoro during a media briefing on the Banking Amendment Bill at Serena Hotel in Nairobi on August 25, 2016. PHOTO | SALATON NJAU 

By GEOFFREY IRUNGU

In Summary

• KCB had 52.5 million shares on offer against demand of 7,000 shares or nearly 8000 times less, raising the prospect of buyers waiting on the wings to enter a lower price. Cooperative Bank owners placed 9.3 million shares on sale against a demand of 7,000.
• The analysts said they expect the battering of bank stocks to continue in the coming weeks as investors assess the full import of the changing market conditions.

Banking stocks Thursday came under a heavy battering at the Nairobi bourse as investors reassessed their positions in the sector following Wednesday’s signing into law of a new Bill capping interest rates.

The Nairobi Securities Exchange (NSE) slid further down the bearish slope that wiped out a total of Sh106 billion in investor wealth, nearly half of it from bank stocks.

The 11 listed commercial banks lost Sh47 billion in just one day, and traders said further losses may have been prevented by the rule that stops stocks from losing more than 10 per cent of their value in a single day unless the regulators have decided that material change affecting a particular stock has occurred to warrant lifting the rule.

Stock market data showed the cap was only removed for DTB, which released its six-month results yesterday.

Nervous investors scrambled to sell more than 100 million shares to mostly non-existent buyers, causing market prices to tank, starting with the top three banks whose share price erosion touched the allowed maximum of 10 per cent.

Equity Bank topped the list of losers, having shed Sh12.26 billion or 9.0 per cent, followed by KCB Group’s Sh9.96 billion or 9.9 per cent and Cooperative Bank’s Sh6.36 billion or 9.8 per cent.

READ: Fasten your belts, cheaper loans will come at a high cost

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Some analysts argued that the market regulators should have considered the signing of the new law capping interest rates a material development for banks and lifted the cap on share price changes at the bourse.

“The interpretation is that this was a material development for banks and the 10 per cent cap on prices ought to have been lifted,” said Eric Musau, a senior research analyst at Standard Investment Bank.

Mr Musau said that the change in the law was not exactly a disaster for commercial banks, noting that there was a likelihood of an overreaction without the regulator’s intervention.

Vimal Shah, the head of research at Burbidge Capital, said the change in law was a material development that was of great concern to investors.

Race to the bottom

The analysts said they expect the battering of bank stocks to continue in the coming weeks as investors assess the full import of the changing market conditions. Trading data showed that very few investors were ready to buy bank stocks at yesterday’s prices, raising the likelihood that the race to the bottom would persist.

Data from Rich Management, a data vending and advisory firm, showed that sellers outstripped buyers by a large margin, tipping the scales in favour of price erosion. Equity Bank, for instance, had 54.8 million shares on offer against a demand of 3,000 shares — an imbalance that saw the share price fall to Sh32.75 from Sh36 the previous session.