Cytonn Investments H1 2021 banking report has ranked I&M bank as the most attractive for the sixth time in a row.
In the report titled, Reduced Provisioning levels Spur Earnings Growth, the bank’s solid position was supported by a strong franchise value and intrinsic value score, mainly due to its solid fundamentals such as its positive management quality and asset quality.
Cytonn analyses results of the listed banks with the franchise score measuring the broad and comprehensive business strength of banks across 13 different metrics and the intrinsic score measuring the investment return potential.
ABSA Bank, which recorded an 846 percent EPS growth, was the most improved bank, coming in second from its fifth position in Q1’2021.
“ABSA Bank recorded an improvement in the overall ranking, coming in 2nd, mainly on the back of the bank having the lowest NPL ratio of the listed banks at 7.9percent coupled with an improvement in the bank’s Cost to Income ratio, which recorded a 5.8percent points decline to 55.5percent from 61.3percent recorded in Q1’202i,” the report noted.
“There was a significant improvement in the performance of the listed banking sector during the quarter, with the Core Earnings per Share recording a weighted increase of 136percent in H1’2021, compared to a weighted decline of 33.6percent recorded in H1’2020,” the report states.
The significant increase in earnings was mainly attributable to reduced provisioning levels by the listed banks following the relatively stable business operating environment during the period.
Loan Loss Provisions recorded a weighted average decline of 24.8percent in H1’2021, compared to a weighted growth of 233.2percent in FY’2020 and 5.5percent in Q1’2021.
I&M Group took the top position in the Intrinsic Value rankings, indicating a superior future growth opportunity and investment return potential, while ABSA Bank took the top position in the Franchise Value Rankings for displaying a broad and comprehensive business strength.
The performance over the period under review, the report said, was skewed by the strong performance from ABSA, KCB Group, and Equity Group, which recorded core EPS growths of 846percent, 101.9percent, and 97.7percent, respectively.
Standard Chartered Bank was ranked sixth, attributable to a 0.2percent decline in its Cost to Income ratio, which contributed to an increase in the bank’s franchise value score, coupled with the bank’s NPL coverage of 80.1percent, which was the highest in the listed banking sector.
Stanbic Bank, on the other hand, declined to Position seven from Position four in Q1’2021, attributable to a 1.7 percent points reduction in the bank’s Net Interest Margin to 4.4percent from 6.1percent in Q1’2021
HF bank came in position ten on the back of weak franchise rankings scores as well as a non-promising future growth opportunity perspective as a result of lack of a proper cost-efficiency structure.
“Consequently, the Yield on Interest Earning Assets (YIEA) increased to 9.9percent, from the 9.7percent recorded in H1’2020, with Net Interest Margin (NIM) increasing to 7.4percent, 0.4 percent points higher than the 7percent recorded in H1’2020 for the whole listed banking sector,” Ann Wacera, Investment Analyst at Cytonn Investments commented.
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