I&M Holdings Ranked as Most Attractive Listed Bank as per CYTONN Investments Q3’2020 Kenya Listed Banking Report
Cytonn Investments has today 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.