The Co-operative Bank of Kenya has emerged top in franchise ranking among all banks in Kenya during Q 2020, according to the latest banking report by Cytonn. This is due to high-efficiency levels as evidenced by a low Cost to Income ratio which came in at 58.1 per cent vs an industry average of 61.4 per cent.
Themed ‘Deteriorating Asset Quality amid the COVID-19 Operating Environment’, the report analysed the quarter one 2020 results of the listed banks.However , I&M Holdings emerged the most attractive supported by a strong franchise value and intrinsic value score with Co-operative Bank coming second .
“We note that asset quality deteriorated in Q1’2020 with the gross NPL [non performing loan] ratio increasing by 0.9 per cent points to 11.3 per cent from 10.4 per cent in Q1’2019, this was high compared to the 5-year average of 8.5 per cent,” said David Gitau, Investment Analyst at Cytonn Investments.
Gitau noted that during the period that banks in accordance with International Finance Reporting Standards 9 were expected to provide both for the incurred and expected credit losses and this saw the NPL coverage increase to 57.4 per cent from 54.5 per cent in Q1’2019 as banks adopted a cautious stance on the back of the expected impact of the COVID-19 pandemic.
KCB Group came third and Equity Group fourth with a total expected return of 68.9 per cent and 44.5 per cent respectively
Diamond Trust Bank Kenya took the top position from a future growth opportunity perspective; however, it’s weak franchise score moved it to position 5 on the weighted score.
Absa Bank was sixth, Stanbic came seventh, Standard Chartered took eighth position and recently merged NCBA took ninth place.
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.
Regulation, Consolidation, Asset Quality, and Capital Conservation shaped the banking sector in Q1’2020 .
On the regulatory front, The Central Bank of Kenya on March 27, 2020 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.
“This stipulated that banks would be allowed to extend loan repayments for their customers for a period not more than one year and the cost of restructuring and extension of loans would be met by the banks,” said said MaryAnne Ng’ang’a, analyst at Cytonn Investments.
According to the report, banks recorded a 7.4 per cent average decline in core earnings per share compared to a growth of 12.2 per cent in Q1’2019 partly attributed to the tough operating environment occasioned by the ongoing Coronavirus pandemic.
However they recorded a deposit growth of 14.3 per cent compared to 11 per cent growth recorded in Q1’2019.
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