President Uhuru Kenyatta (left), James Ndegwa (centre) and Equity Group chief-executive James Mwangi. FILE PHOTO | NMG
Summary
- NCBA emerged following the merger between the listed NIC Bank and the private CBA Group, and the merged shares including those owned by the Kenyatta family started trading on the bourse last Tuesday.
- The Ndegwa family, which owns 12 percent of the merged bank, have seen their paper wealth in the lender increase Sh1 billion to hit Sh6.8 billion.
- Kenyan bank shares stepped up their rally on Wednesday after news that Parliament has inched closer to lifting a cap on commercial interest rates.
- The National Assembly’s Finance Committee said in a report on Tuesday that lawmakers should lift the cap after Mr Kenyatta refused to sign the government’s Finance Bill for this fiscal year until the House removes the cap.
The Kenyatta family, the family of former Central Bank governor
Philip Ndegwa and Equity Group chief executive James Mwangi have each
gained more than Sh1 billion over the past two weeks after a surge in
bank share prices on news of a push to remove the cap on commercial
lending rates.
Mr Mwangi leads the pack after his five
percent stake in Equity Bank gained Sh1.6 billion since October 18 when
news leaked that President Uhuru Kenyatta had asked that lawmakers
remove the cap on lending rates. His stake in the bank is worth Sh8.7
billion, underlining his position as one of Kenya’s wealthiest
entrepreneurs.
He was followed by the Kenyatta family,
whose 13.2 percent stake in NCBA Group has increased by Sh1.08 billion
since their shares were listed at the Nairobi bourse on October 22,
pushing their wealth in the bank to Sh7.7 billion.
NCBA
emerged following the merger between the listed NIC Bank and the
private CBA Group, and the merged shares including those owned by the
Kenyatta family started trading on the bourse last Tuesday.
The
Ndegwa family, which owns 12 percent of the merged bank, have seen
their paper wealth in the lender increase Sh1 billion to hit Sh6.8
billion.
Kenyan bank shares stepped up their rally on Wednesday after
news that Parliament has inched closer to lifting a cap on commercial
interest rates.
The National Assembly’s Finance
Committee said in a report on Tuesday that lawmakers should lift the cap
after Mr Kenyatta refused to sign the government’s Finance Bill for
this fiscal year until the House removes the cap.
Nine
of the 10 banks listed on the Nairobi Securities Exchange (NSE) have
witnessed a rally with six of them recording double-digit gains over the
two weeks, adding Sh107 billion to the wealth of investors who own the
lenders.
“We expect banking stocks to rally as their
profitability prospects improve following the removal of rate caps,”
investment bank AIB Capital said in a research note.
AIB
said it expects lending and bank profitability – based on higher
margins on loans — to rise if the lending controls are abolished.
Equity
has risen 23.6 percent over the two weeks to close trading at Sh46.50
yesterday, while Barclays Kenya jumped 19.3 percent to trade at Sh13.30.
KCB
Group gained 21.5 percent, NCBA (16.3 percent) and Co-operative Bank
surged 16.9 percent, which saw the 1.7 percent stake held by its CEO,
Gideon Muriuki, rise Sh209 million pushing his worth in the lender to
Sh1.4 billion.
Parliament will vote on whether to accept the Finance Committee’s recommendations next Tuesday.
Lawmakers
have the option of removing the cap from the Bill or overruling the
President if two-thirds of the 349 members vote to override his
position.
But investors have rushed to buy the lenders’
stocks at the Nairobi bourse on anticipation of increased gains in
coming days as others eye long-term gains in the form of dividends.
In
2016, the government limited rates banks can charge customers to four
percentage points above the central bank’s benchmark - currently nine
percent - saying it was concerned about high rates.
This
restricted loan costs to a maximum of 13 percent, triggering a credit
crunch as commercial banks cut off millions of low-income customers and
small businesses deemed as too risky.
The cap also made bank stocks unattractive to investors seeking capital gains at the bourse.
Before
introduction of rate caps, banks’ interest rates rose up to 25 percent
in what guaranteed the lenders double-digit profit and dividend growth .
This cemented the lenders’ stocks as crown jewels at the NSE.
The
banking sector’s financial performance data for the past four years
shows that the lenders have managed to recover their footing after the
initial hit from the rate cap, largely by turning to risk-free
government lending and aggressively cutting costs.
Banks
raised their investment in government debt paper by more than Sh500
billion to Sh1.5 trillion, but have also been met by falling rates on
the fixed income securities.
Equity and Standard
Chartered Bank (Kenya), which have some of the highest cash reserves,
are seen as best placed to take advantage of the return to free floating
rates.
Investors have been aggressively buying bank
stocks in anticipation of the higher earnings, with the biggest lenders
posting the largest price gains.
The biggest
beneficiaries of the bank stocks rally include pension funds, wealthy
individuals and foreign institutional investors who hold stakes worth
billions of shillings.
Further price gains on banking
stocks in the coming weeks could help the Nairobi bourse reverse some of
the paper losses in the bear market that has lasted five years.
Safaricom,
which together with banks account for 73 percent of the value of the
bourse, also rallied to hit highs of Sh29.6 yesterday, up from Sh28.90
each on Tuesday.
The House committee is proposing
shielding existing loans from any increases in rates if the limits are
repealed, according to its report that was issued late on Tuesday.
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