Customers at KCB-Kencom Branch banking Hall in Nairobi. KCB Group, which
is cross-listed on the Ugandan Securities Exchange saw its share price
grow by 20 per cent to Ush1,958.88 ($0.52), from Ush1,633 ($0.43) in the
same period last year. FILE PHOTO | NATION
It was a case of mixed results for the share prices of listed
banks in the region over the past three months, with those in Kenya and
Uganda growing, fuelled by renewed investor confidence in the
lenders’ growth outlook for 2018, and a positive economic outlook for the two countries.
lenders’ growth outlook for 2018, and a positive economic outlook for the two countries.
In Kenya, the share prices of listed banks
increased by an average of 12 per cent between February 26 and April 25,
while in Uganda they grew by 17 per cent over the same period.
But
in Tanzania and Rwanda, listed banks’ share prices remained unchanged
or recorded a drop, according to data from the countries’ respective
stock exchanges.
In Kenya, banking stocks are
registering increased demand in the wake of reduced political jitters,
falling inflationary pressures, increased rains that are likely to
translate into improved harvests and news that the interest rate cap,
which has impacted banking profitability, is likely to be reviewed.
According
to the World Bank, Kenya’s positive economic outlook is underpinned by a
recovering agricultural output due to favourable rains and the easing
of political uncertainty, which is lifting business sentiment.
However, partially mitigating these favourable factors is the drag on growth, in the face of weak private sector credit growth.
Attractive dividends
In
Uganda, share prices of listed banks have risen, triggered by attractive
dividends declared by the lenders and bullish investor sentiment on the
country’s economic outlook.
According to the Bank of
Uganda, the country’s economic outlook is more positive than previously
predicted and there are signs of increased business confidence. Uganda’s
economic growth rate is projected at an average of 6.5 per cent in the
next three years.
During the three months, Barclays
Kenya, which is set to rebrand to Absa, recorded the highest share price
increase of 27 per cent to Ksh13.15 ($0.13) per share, followed by KCB
Group whose share price grew by 20.23 per cent to Ksh52 ($0.52) per
share.
Equity Bank’s share grew by 12.72 per cent to
Ksh48.75 ($0.48) per share while that of Co-operative Bank grew by 10.18
per cent to Ksh18.4 ($0.18) per share.
In Uganda, Bank
of Baroda saw its share price grow by 25 per cent to Ush150 ($0.04) per
share from Ush120 ($0.03) in the three months.
It was
followed by KCB Group, which is cross-listed on the Ugandan Securities
Exchange with its share price growing by 20 per cent to Ush1,958.88
($0.52), from Ush1,633 ($0.43) in the same period last year.
The
share prices of Tanzania’s listed banks, however, declined by an
average of 0.86 per cent pulled down by CRDB Bank share which was down
10 per cent to Tsh180 ($0.07) per share from Tsh200 ($0.08) per share.
While
the share price of KCB Tanzania grew by 10 per cent to Tsh 1,175
($0.51) from Tsh1,070 ($0.46), those of Mufindi Community Bank, Yetu
Microfinance, National Microfinance Bank, Mkombozi Commercial bank,
Mwalimu Commercial Bank, Maendeleo bank and DCB Commercial Bank remained
unchanged during the period.
Tanzania shutdown
In
January, the Bank of Tanzania shook investor confidence by shutting
down five lenders that had inadequate capital. It is also feared that
reforms in Tanzania’s mining sector could lock out foreign commercial
banks from the lucrative sector.
The Mining Regulations
on Local Content (2018), which came into effect in January, require
mining companies to have a bank account in a Tanzania-owned bank in the
country.
The average share prices of Rwanda’s listed
banks dropped by an estimated 0.2 per cent. While the share prices of
the cross-listed Equity and KCB remained unchanged at Rwf 350 ($0.4) and
Rwf 340 ($0.39) per share respectively, the stock of Bank of Kigali
declined to Rwf 290 ($0.33) per share from Rwf295 ($0.34) per share ($0.1). I&M Bank Rwanda’s share increased to Rwf97($0.11) from Rwf95 per share in the same period.
According
to Moody’s Investor Service, Kenyan banks’ profitability remains one of
the highest, both regionally and globally, providing good protection in
hard times.
The three large banks, KCB, Equity and
Cooperative’s capital buffers further support their overall solvency and
their ability to withstand unexpected losses, Moody says.
Kenya growth prospects
According
to the rating agency, Kenya has strong economic growth prospects, well
above the sub-Saharan Africa level, supporting business growth for its
banks.
“Despite their different business models and
areas of vulnerability, we expect all three banks to maintain healthy
profits and strong capital, that will continue to provide substantial
protection against downside risks and contribute to support their credit
quality,” said Moody’s.
KCB, Equity and Co-operative
Bank have reacted differently to the challenging operating conditions.
Equity Bank has reduced its risks, looking to government securities
while KCB Bank and Cooperative Bank have continued to grow their loan
books in the consumer and corporate lending segments, despite the
challenging operating environment.
According to Moody’s
Co-op erative Bank’s profitability continues to be supported by its
entrenched domestic franchise (as the country’s third-largest bank in
terms of assets and with a fairly large customer base of 6.8 million)
and the ongoing benefits from its transformation strategy.
Last
year, the East African region was hard hit by a prolonged drought
caused by El Nino and high temperatures linked to climate change that
impacted farm produce, causing countries such as Kenya to subsidise
flour prices.
In Kenya, the drought hindered
agricultural productivity and resulted in high inflation for food prices
while prolonged political activities and the presidential election
impasse hurt private-sector activity.
In Rwanda, the
slowdown of economic activities in the first half of 2017 impacted, the
financial sector through weaker credit demand and increase of
non-performing loans in sectors like agriculture.
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