FOR IMMEDIATE RELEASE
“EQUITY GROUP REMAINS THE MOST ATTRACTIVE LISTED BANK AS PER CYTONN
INVESTMENTS Q1’2023 KENYA LISTED BANKING SECTOR REPORT”
Cytonn Investments has released its Q1’2023 Banking Sector Report today, which ranks Equity Group as the most attractive bank in Kenya, supported by a strong franchise value and intrinsic value score. The franchise score measures a bank's broad and comprehensive business strength across 13 different metrics, while the intrinsic score measures the investment return potential.
The report, themed “Sustained Profitability Despite Challenging Business Environment”, analysed the Q1’2023 results for the listed banks. “The core earnings per share (EPS) for the listed banks recorded a weighted growth of 25.0% in Q1’2023, compared to a weighted growth of 37.9% recorded in Q1’2022, an indication of sustained performance despite the tough operating environment occasioned by elevated inflationary pressures experienced during the period. The performance in Q1’2023 was supported by a 48.1% growth in non-funded income and a 20.1% growth in net interest income. Additionally, Asset Quality for the listed banks deteriorated marginally during the period, with the market-weighted average NPL ratio increasing by 0.1% points to 12.6%, from 12.5% in Q1’2022. We note that the NPL ratio still remains higher than the 10-year average of 9.6%.” Said Sang Gideon, Investment Analyst Coordinator at Cytonn Investments.
Three key drivers shaped the Banking sector in Q1’2023: Regulation, Regional Expansion through Mergers and Acquisitions and Asset Quality.
“In Q1’2023, the CBK looked towards entirely shifting to the Risk-Based Pricing framework, with 33 banks approving their models as of May 2023. As for mergers and acquisitions, activities increased with three completed acquisitions. In light of that, in January 2023, the Central Bank of Kenya (CBK) announced that Commercial International Bank (Egypt) S.A.E. (CIB) had completed the acquisition of an additional 49.0% shareholding in Mayfair CIB Bank Limited (MBL) at Kshs 5.0 billion, following the earlier acquisition of a 51.0% stake in MBL announced in April. Equity Group Holdings Plc, through Equity Bank Kenya Limited (EBKL), also announced that it had completed the acquisition of certain assets and liabilities of the local bank, Spire Bank Limited, after obtaining all the required regulatory approvals. Also, in March 2023, the Central Bank of Kenya (CBK) announced that Premier Bank Limited Somalia (PBLS) had completed the acquisition of 62.5% of First Community Bank Limited (FCB) effective March 27, 2023. Notably, there have been two activities so far in Q2’2023, with the Central Bank of Kenya (CBK) announcing the acquisition of a 20.0% stake in Credit Bank Plc by Shorecap III, LP, a private equity fund registered under the laws of Mauritius, with Equator Capital Partners LLC as the managers of the fund. The CBK did not disclose the deal's value; however, Shorecap III, LP, will take over 7,289,928 ordinary shares, constituting 20.0% of the ordinary shares of the bank. Additionally, in June 2023, Equity Group Holdings Plc (EGH) announced that it had entered into a binding agreement with the Government of Rwanda, the Rwanda Social Security Board, and other investors of Compagnie Generale De Banque (Cogebanque) Plc Limited to acquire a 91.9% stake in the Rwanda-based lender. Upon the completion of the acquisition, EGH plans to eventually merge the business of Cogebanque with its Rwandan subsidiary, Equity Bank Rwanda Plc." Said Samuel Ochieng, Investment Analyst at Cytonn Investments.
Equity Group Holdings maintained its position 1 rank mainly due to its strong intrinsic value. ABSA Bank’s rank improved to position 2 in Q1’2023 from position 5 in Q1’2022, mainly driven by a strong franchise score driven by improvement in the bank’s management quality, with the cost-to-income ratio with LLPs declining by 2.9% to 53.7% in Q1’2023, from 56.6% in Q1’2022. NCBA Group’s rank improved to position 5 in Q1’2023 from position 6 in Q1’2022, mainly attributable to a 3.5% points decline in the group’s NPL ratio to 12.8% from 16.3% recorded in Q1’2022, as well as an increase in the group’s return on average equity to 18.4% from 14.0% in Q1’2022. I&M Group’s rank declined to position 7 in Q1’2023, from position 3 in Q1’2022, mainly due to a deterioration in the group’s asset quality as the gross NPL ratio rose to 10.6% from the 10.0% recorded in Q1’2022. Also, KCB Group’s rank declined to position 4 in Q1’2023, from position 2 in Q1’2022, mainly due to a deterioration in management quality, with the cost-to-income ratio with LLPs increasing by 10.7% points to 62.4% from 51.7% recorded in Q1’2022, while the cost-to-income without LLP also increased by 6.7% to 51.2% from 44.5% in Q1'2022. KCB Group’s asset quality deteriorated, with the NPL ratio increasing to 17.1% from 16.9% recorded in Q1’2022.
Table 1: Listed Banks Franchise and Intrinsic Ranking
The table below ranks banks based on franchise and intrinsic ranking, which compares metrics for efficiency, asset quality, diversification, growth, and profitability, among other metrics:
|
Cytonn Report: Listed Banks Q1’2023 Rankings |
|||||
|
Bank |
Franchise Value Rank |
Intrinsic Value Rank |
Weighted Rank |
Q1’2022 |
Q1’2023 |
|
Equity Group Holdings Ltd |
5 |
1 |
2.6 |
1 |
1 |
|
ABSA Bank |
3 |
3 |
3.0 |
5 |
2 |
|
Co-operative Bank of Kenya Ltd |
2 |
5 |
3.8 |
4 |
3 |
|
KCB Group Plc |
7 |
2 |
4.0 |
2 |
4 |
|
NCBA Group Plc |
8 |
4 |
5.6 |
6 |
5 |
|
Stanbic Bank/Holdings |
1 |
9 |
5.8 |
8 |
6 |
|
I&M Holdings |
4 |
8 |
6.4 |
3 |
7 |
|
SCBK |
6 |
7 |
6.6 |
7 |
8 |
|
DTBK |
9 |
6 |
7.2 |
9 |
9 |
|
HF Group Plc |
10 |
10 |
10.0 |
10 |
10 |
Table 2: Cytonn’s Q1’2023 Listed Banks Earnings and Growth Metrics
|
Cytonn Report: Listed Banks Performance in Q1’2023 |
|||||||||||||
|
Bank |
Core EPS Growth |
Interest Income Growth |
Interest Expense Growth |
Net Interest Income Growth |
Net Interest Margin |
Non-Funded Income Growth |
NFI to Total Operating Income |
Growth in Total Fees & Commissions |
Deposit Growth |
Growth in Government Securities |
Loan to Deposit Ratio |
Loan Growth |
Return on Average Equity |
|
HF Group |
143.5% |
15.1% |
9.1% |
21.0% |
5.0% |
8.7% |
30.4% |
(29.7%) |
7.4% |
31.4% |
89.7% |
6.2% |
3.8% |
|
Stanbic Bank |
84.3% |
49.1% |
59.7% |
44.7% |
7.2% |
89.3% |
51.4% |
17.7% |
23.8% |
9.7% |
79.1% |
11.5% |
20.7% |
|
Absa Bank |
50.7% |
38.3% |
46.8% |
36.0% |
8.3% |
49.3% |
32.5% |
29.7% |
15.3% |
(1.8%) |
99.7% |
27.7% |
25.5% |
|
NCBA Group |
48.5% |
21.0% |
25.2% |
18.0% |
6.0% |
18.5% |
46.2% |
9.1% |
7.3% |
6.4% |
57.5% |
17.7% |
18.4% |
|
SCBK |
45.7% |
34.1% |
(5.4%) |
40.1% |
7.3% |
55.5% |
35.9% |
13.3% |
14.2% |
(6.2%) |
45.3% |
7.0% |
23.0% |
|
DTBK |
11.3% |
32.1% |
49.2% |
20.7% |
5.4% |
59.1% |
29.6% |
26.5% |
17.9% |
3.1% |
66.8% |
20.3% |
9.1% |
|
Equity Bank |
7.9% |
21.6% |
46.9% |
12.1% |
7.4% |
54.3% |
45.9% |
39.2% |
23.3% |
(7.7%) |
68.1% |
21.3% |
26.8% |
|
Coop Bank |
4.7% |
11.2% |
32.2% |
3.9% |
8.5% |
10.8% |
39.7% |
9.7% |
2.2% |
(2.3%) |
85.8% |
11.0% |
20.7% |
|
KCB Group |
(1.0%) |
26.2% |
67.7% |
11.8% |
7.3% |
59.2% |
40.1% |
65.5% |
41.5% |
4.8% |
77.6% |
31.9% |
20.9% |
|
I&M Holdings |
(2.0%) |
18.3% |
20.2% |
17.0% |
6.3% |
58.8% |
36.4% |
16.6% |
4.9% |
(13.3%) |
79.4% |
18.0% |
14.4% |
|
Q1'23 Mkt Weighted Average* |
25.0% |
26.2% |
40.2% |
20.1% |
7.3% |
48.1% |
41.3% |
30.0% |
19.0% |
(1.2%) |
73.1% |
19.6% |
22.1% |
|
Q1'22 Mkt Weighted Average** |
37.9% |
17.8% |
17.1% |
17.7% |
7.3% |
21.4% |
35.9% |
21.7% |
9.5% |
17.6% |
73.9% |
17.2% |
21.9% |
|
*Market cap weighted as at 15/06/2023 |
|||||||||||||
|
**Market cap weighted as at 17/06/2022 |
|||||||||||||
Key takeaways from the table include:
- Listed banks recorded a 25.0% growth in core Earnings per Share (EPS) in Q1’2023, compared to the weighted average growth of 37.9% in Q1’2022, an indication of sustained performance despite the tough operating environment experienced in Q1’2023 on the back of elevated inflationary pressures. The performance during the period was mainly supported by a 48.1% weighted average growth in non-funded income, coupled with a 20.1% weighted average growth in net interest income,
- The listed banks continued to implement their revenue diversification strategies, as evidenced by non-funded income weighted average growth of 48.1% in Q1’2023 compared to a weighted average growth of 21.4% in Q1’2022. The performance was largely supported by the increase in foreign exchange income recorded by the banks during the period as a result of increased dollar demand in the country,
- Listed banks' investments in government securities slowed down in Q1’2023, with a market-weighted average decline of 1.2% compared to a 17.6% growth in Q1’2022. The slowed growth of investment in Kenya government securities is partly attributable to the increased perceived risk of default by the government, mainly on the back of high debt sustainability concerns given the current high public debt stock as well as the upcoming Eurobond maturity in June 2024,
- The listed banks' Net loans and advances to customers recorded a weighted average growth of 19.6% in Q1’2023 compared to 17.2% in Q1’2023, an indication of increased lending despite the elevated credit risk; interest income recorded a weighted average growth of 26.2% in Q1’2023, compared to 17.8% in Q1’2022. Similarly, interest expenses recorded a market-weighted average growth of 40.2% in Q1’2023 compared to a growth of 17.1% in Q1’2022. As such, net interest income recorded a weighted average growth of 20.1% in Q1’2022 compared to 17.7% in Q1’2022, and,
- The listed banks recorded a 22.1% weighted average growth on return on average equity (RoaE), 0.2% higher than the 21.9% growth recorded in Q1’2022. Additionally, the entire banking sector’s Return On Equity (ROE) recorded a 1.9% points increase to 27.0% in Q1’2023, from 25.1% recorded in Q1’2022
Source: Cytonn Research
Notes to the Editor:
Cytonn Investments is an independent investment management firm with offices in Nairobi - Kenya, and D.C. Metro - U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs 82.0 billion of investments and projects under mandate, primarily in real estate.
Cytonn Real Estate is Cytonn’s development affiliate, which is focused on developing institutional-grade real estate targeted at specific institutional, high net-worth and Diaspora investors. Collective, Cytonn Investments and Cytonn Real Estate manage over Kshs 82.0 billion in real estate projects.
For more information, kindly contact:
Clifford M. Mulama
Brand and Communications
+254 713 840 107
Email: cmulama@cytonn.com
