, NAIROBI, Kenya, Nov 7 – Commercial banks and financial institutions should expect enhanced risk-based analysis and supervisions following the recent closure of Dubai and Imperial bank, a financial expert has cautioned.
The closure has seen deposits flight from smaller banks to top tier banks.
“Equity Bank has already revealed that they have received Sh3bn of deposits from smaller banks, however we have seen the Central Bank of Kenya coming out to help out the smaller banks stabilising the market,” said Maurice Odhiambo Investment Manager, Cytonn Investment.
Odhiambo is of the view that Kenya is over-banked with a relatively high ratio of banks to total population, with 42 commercial banks serving 44 million people.
This is compared to Nigeria’s 22 banks for 180 million people while South Africa has 19 banks for 55 million people.
Odhiambo was speaking on Monday when he released Cytonn Investment Banking report for the third quarter.
The report indicates that cost containment, technology and growth of the retail segment are some of the initiatives Kenyan banks are expected to focus on.
The report also indicates that Kenyan banks are also seeking to expand both regionally and domestically.
During the period under review Banks experienced low loan uptake owing to expensive costs of financing loans driven by actions by the Central Bank of Kenya (CBK), which raised its base lending rate by 300 basis points in the quarter.
“We expect non performing loans to go higher going forward,” Odhiambo added.
According to the report Equity Bank was ranked the best performing bank in the period under review. Diamond Trust Bank of Kenya rose six ranks to the second position.
“This was boosted by an increase in the banks’ growth rate of 18.4 percent owing to their regional expansion strategy, and increased focus on more efficient channels of distribution like agency banking. The banks’ high quality loan book and risk management also boosted its franchise value,” the report states.
Standard Chartered bank declined three ranks to the fifth position based on its increase in non-performing loans that brought down its NPLs / Loans ratio. Barclays Bank ranked the third highest overall, having the highest net interest margin attributable to the more expensive loans, yet sticky customer base.
National Bank of Kenya was the second most inefficient bank in terms of cost containment, operating at cost to income ratios of 56.9 percent.
In addition, they have the lowest quality of assets in their loan portfolio, as can be seen by their NPLs which are 8.8 percent of their total loan book.
The overall ranking was based on a weighted average ranking of Franchise value accounting for 40 percent and Intrinsic value accounting for 60 percent