Kenya’s banks rated high on share return

Kenya’s banking sector continues to offer attractive returns for investors especially after the removal of the rate cap, a new report says.

The sector review by Investec Bank SA says the low funding costs relative to the sector allows the banks to compete more aggressively for sparse high-quality borrowers compared to lenders in Africa’s biggest economy, Nigeria.

“Kenyan banks continue to offer more competitive returns relative to their counterparts in Nigeria as a result of Kenya’s superior banking policy consistency and stability as compared to Nigeria, and especially the recent repeal of rate caps,” said the report.

The review covered top-tier lenders Co-operative, KCB and Equity banks. It analysed prices of February 3 and was dated yesterday.

“The current policy dynamic in Kenya, on balance, remains supportive of real earnings growth in the medium term.”

Co-operative Bank’s share maintained its top rating of ‘Buy’ with a projected fair price of Sh17.30 from Sh15.15 and a growth potential of 14.2 per cent. 

This means that an investor who bought 1,000 Co-operative Bank shares on February 3 worth Sh15,150 would see their value rise to at least Sh17,300.

KCB came second with “upside potential” of 12.9 per cent from Sh52.00 to Sh58.70 (upgraded to Buy) while Equity was third, projected to rise 3.9 per cent from Sh50.25 to Sh52.20 but downgraded to ‘Hold’.

“Co-op Bank has delivered much stronger growth in non-funded income streams relative to peer banks, on account of robust digital banking offerings and agent banking channels, a trend expected to continue in the medium term,” said Investec in the review.

“We forecast rising return on equity as existing clients are migrated to cheaper digital and agent channels which should contain cost.”

Banking is the most vibrant sector at the Nairobi Securities Exchange as investors go for capital returns. The sector accounted for 74.9 per cent of the traded market volume on Wednesday with shares worth Sh386 million.

Market turnover for the day was Sh515 on 13.5 million against Sh841 million and 23.7 million shares on Tuesday.

On Investec’s projection, Co-op Bank is on track to deliver a 12-month return of 22.3 per cent followed by KCB with a 22.2 per cent. Equity is expected to deliver 10.1 per over the 12 months.