NAIROBI, Kenya, Dec 13 – The Kenya Commercial Bank (KCB) Group has been ranked as the most attractive bank in Kenya supported by a strong franchise value and intrinsic value score, this is according to the Cytonn Investments Q3’2021 banking sector report.
The report, themed “Banking Sector Recovers due to Improved Asset and Management Quality” analysed the Q3’2021 results of the listed banks and scored their business strengths across 13 different metrics.
KCB Group recorded an improvement in the overall ranking, coming in at position 1 from position 3 in H1’2021, attributable to a decline in the bank‘s Gross NPL ratio to 13.7 percent, from the 14.4 percent recorded in H1’2021.
The bank’s franchise value score recorded a 2.0 percentage points decline to 55.2 from 57.2 percent recorded in H1’2021.
Co-operative Bank’s rank, on the other hand, improved to position 6 from position 8 in H1’2021, attributable to an increase in the bank’s coverage ratio to 65.5 percent, higher than the 63.5 percent recorded in H1’2021.
The bank’s net interest margin ratio also increased to 8.5 percent, which was the highest in the listed banking sector.
I&M Holdings’ rank declined to position 3 after being ranked position 1 six times in a row, mainly due to a deterioration in the bank’s Cost to Income ratio to 62.1 percent, from 56.3 percent recorded in H1’2021.
NCBA Group’s rank declined to position 7 from position 5 in H1’2021, attributable to a deterioration in the bank‘s asset quality, as the Gross NPL ratio rose to 17.0 percent, from the 16.7 percent recorded in H1’2021.
Overall, the asset quality for the listed banks improved in Q3’2021, with the gross NPL ratio declining by 0.4 percentage points to 12.0 per cent, from 12.4 per cent in Q3’2020.
“We however note that despite this marginal improvement in the asset quality, the NPL ratio remains higher than the 10-year average of 8.1,” Cytonn said in a statement.
The listed banks’ management quality also improved, with the cost to income ratio improving by 12.0 percentage points to 58.1 per cent, from 70.1 per cent recorded in Q3’2020, as banks continued to reduce their provisioning levels following the improved business environment during the period.
Jane Wambui, Assistant Analyst at Cytonn Investments said the COVID-19 pandemic exposed the weak banks in the industry which might need to be acquired by larger banks in order to boost their capital adequacy and liquidity ratios to the required minimum statutory levels.
‘Mergers and Acquisitions remained a key theme in Q3’2021, with the current environment providing opportunities for bigger banks with an adequate capital base to expand and take advantage of the low valuations in the market to further consolidate and buy out smaller banks, we expect to see continued consolidation in the banking sector as the weaker banks are merged with the big banks to form a stronger banking system,’ she said.
Wambui added that they also expect to see Kenyan banks continue to diversify into other African regions as they look to reduce their reliance on the Kenyan market.
