I&M Holdings has been ranked as the most attractive listed bank according to Cytonn Investment’s third-quarter 2020 report, called the Kenya listed banking report.
The report that was released today, 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.
Ann Wacera, Analyst at Cytonn Investments, while releasing the report said, “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 a 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 trillion, representing 38.6% of the total Kshs 2.9 trillion banking sector loan book, being restructured as of August 2020, according to data from the September 2020 Monetary Policy Committee (MPC) Meeting.”
The report, themed “Erosion of the Banking Sector’s Asset Quality amid the COVID-19 Operating Environment,” analyzed the Third Quarter 2020 results of listed banks in the country.
According to the report, 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 however higher compared to the 5-year average of 8.5%.
The report noted that 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.
Moreover, 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.
Most Attractive Listed Bank Top Position
While I&M Holdings took the top position as the most attractive listed bank in the weighted score of both franchise and future growth opportunity perspective having a better capacity to generate profits from its core business, other banks did not perform well.
For example, KCB Group ranked 7th overall due to the deterioration of their asset quality and rise in non-performing loans.
On the other hand, HF took position 10 on the back of weak franchise rankings scores as well as a non-promising future growth opportunity perspective because of the lack of proper cost-efficiency structure.
The five key drivers that shaped the Banking sector in Q3’2020, according to the report were Regulation, Monetary Policy, Consolidation, Asset Quality, and Capital Conservation.