I & M THE MOST ATTRACTIVE BANK IN KENYA
By Vera Shawiza
Cytonn Investments released its Q3’2020
Banking Sector Report, which ranks I&M
Holdings as the most attractive bank in Kenya,
supported by a strong franchise value and
intrinsic value score.
The franchise score measures the broad and
comprehensive business strength of a bank
across 13 different metrics, while the intrinsic
score measures the investment return potential.
The report, themed “Erosion of the Banking
Sector’s Asset Quality amid the COVID-19
Operating Environment,” analysed the Q3’2020
results of the listed banks.
“Asset quality for listed banks deteriorated in
Q3’2020 with the Gross NPL ratio rising by 2.6%
points to 12.4% from 9.8% in Q3’2019. This was
high compared to the 5-year average of 8.5%.
The deterioration in asset quality was due to
the coronavirus-induced downturn in the
economy, which led to an uptick in the non-
performing loans. Consequently, the NPL
coverage rose to 59.2% in Q3’2020 from 57.8%
recorded in Q3’2019, in accordance with IFRS 9,
where banks are expected to provide both for
the incurred and expected credit losses.
We expect higher provisional requirements to
subdue profitability during the year across the
banking sector on account of the tough
business environment”, said David Gitau,
Investment Analyst at Cytonn Investments. Five
key drivers shaped the Banking sector in
Q3’2020, namely Regulation, Monetary Policy,
Consolidation, Asset Quality, and Capital
Conservation.
“On the regulatory front, on March 27th 2020,
the Central Bank of Kenya provided commercial
banks and mortgage finance companies with
guidelines on loan reclassification, and
provisioning of extended and restructured loans
as per the Banking Circular No 3 of 2020.
The loan restructuring involved placing
moratoriums on both interest and principal
payments between three to twelve months, in
effect giving reprieve to borrowers who found it
difficult to repay their loans due to the impact
caused by the pandemic.
Following this guidance, the banking sector has
seen a total of Kshs 1.1 tn, representing 38.6%
of the total Kshs 2.9 tn banking sector loan
book, being restructured as at August 2020,
according to data from the September 2020
Monetary Policy Committee (MPC) Meeting”,
said Ann Wacera, Analyst at Cytonn
Investments.
I&M Holdings took the top position in the
weighted score of both franchise and future
growth opportunity perspective having a better
capacity to generate profits from its core
business, KCB Group recorded a decline in the
franchise value ranking, coming in 7th mainly
on the back of the deterioration of their asset
quality as evidenced by the group’s high Non-
Performing Loans (NPL) ratio of 15.3% against
a weighted average of 12.4%, and, HF came in
10th position on the back of weak franchise
rankings scores as well as a non-promising
future growth opportunity perspective as a
result of lack of proper cost efficiency structure
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