Kenyan Listed Banks Witness Increase in Core EPS, Decline in Deposits in Q3’2018

Kenyan listed banks recorded a 16.2% average increase in Core Earnings Per Share (EPS), compared to a decline of 9.3% in Q3’2017.
According to Cytonn Investments November 2018 highlights, all the banks recorded positive growth except for NIC Group and HF group that recorded declines in core EPS.
“NIC recorded a decline of 3.3%, and HF recording a decline to a loss per share of Kshs 0.9 from core earnings per share of Kshs 0.5 in Q3’2017. National Bank recorded the highest growth of 303.2% y/y,” Cytonn Notes.
The Central Bank of Kenya during its MPC meeting in November reiterated that the sector remained stable and resilient.
“Average commercial banks’ liquidity and capital adequacy ratios increased to 48.9 percent and 18.4 percent, respectively, in October 2018. The ratio of gross non-performing loans (NPLs) to gross loans fell to 12.3 percent in October 2018 from 12.7 percent in August, largely due to declines in NPLs in the trade, and personal and household sectors. The declines were mainly due to sustained recovery efforts by banks.”
Q3’2018 Highlights
The sector recorded weaker deposit growth, which came in at 7.4%, slower than the 13.8% growth recorded in Q3’2017. Despite the slower deposit growth, interest expenses increased by 12.5%, indicating banks have been mobilizing expensive deposits.
Average loan growth was anemic coming in at 4.2%, which was lower than 6.1% recorded in Q3’2017, indicating that there was an even slower credit extension in the economy, due to sustained effects of the interest rate cap.
Government securities, on the other hand, recorded a growth of 14.6% y/y, which was faster compared to the loans, and faster than 10.3% recorded in Q3’2017.
“This indicates that banks’ continued preference towards investing in government securities, which offer better risk-adjusted returns.”
Interest income increased by 6.1%, compared to a decline of 5.8% recorded in Q3’2017, as banks adapted to the interest rate cap regime, with increased allocations in government securities. The Net Interest Income (NII) thus grew by 3.8% compared to a decline of 7.3% in Q3’2017.
The average Net Interest Margin in the banking sector currently stands at 8.0%, down from the 8.5% recorded in H1’2017, despite the Net Interest Income by increasing 3.8% y/y. The decline was mainly due to the faster 14.6% increase in allocation to relatively lower yielding government securities.
Non-funded Income grew by 5.9% y/y, slower than 10.9% recorded in Q3’2017. The growth in NFI was weighed down as total fee and commission growth was flat, growing by 0.6%, slower than the 10.5% growth recorded in Q3’2017. The growth in fee and commission income continued to be subdued by the slow loan growth.
Source: Cytonn Investments