Bank stock valuations have fallen below their histo
Summary
- Bank stock valuations have fallen below their historical average as the shares take a hit from the Covid-19-led downturn, making their current prices attractive for buying.
- Nairobi-based investment bank Genghis Capital says in a coverage note on six tier one lenders that it expects earnings for the year will drop by an average of 11.9 percent, mainly due to an increase in provisioning and depressed income growth from risk-off asset strategies and restructured loan books.
Bank stock valuations have fallen below their historical average
as the shares take a hit from the Covid-19-led downturn, making their
current prices attractive for buying.
Nairobi-based
investment bank Genghis Capital says in a coverage note on six tier one
lenders that it expects earnings for the year will drop by an average of
11.9 percent, mainly due to an increase in provisioning and depressed
income growth from risk-off asset strategies and restructured loan
books.
However, the analysts expect that in the long
term there will be a recovery as the quality of loan books improves with
the return to normalcy of the economy.
“While Return
on Equity (RoE) will remain depressed in 2020, our long-term RoEs are
expected to recover substantially in the years post-pandemic from the
growth in the balance sheets and subsiding provisioning levels,” said
Genghis analyst Gerald Muriuki in the note.
Since the
beginning of the year, banks’ share prices at the NSE have dropped by
between 18 and 42 percent, while the need to preserve capital has seen a
number of lenders track back on proposed dividend payments, further
hurting their shares’ performance.
The Central Bank of Kenya said on Wednesday that by end of June
banks had restructured Sh844.4 billion loans for customers affected by
the Covid-19 economic effects, equivalent to 29 percent of the total
banking sector loan book of Sh2.9 trillion.
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