ICEA Lion Sees an Upside Potential for Banking Stocks

Foreign investors have turned bullish on Kenya as the Nairobi Securities Exchange (NSE) with NASI, NSE 20 and NSE 25 gaining by 3.0%, 0.5% and 2.6%, respectively

ICEA LION Asset Management, a leading investment firm operating in both Kenya and Uganda on Thursday said it sees big upside potential in 2021 for listed bank stocks, citing  an economic recovery from the coronavirus pandemic.

“The feedback we are getting from banks is that a significant number of customers were beginning to repay loans earlier than expected as cash flow improves,” it said during the launch of its DigiTrust, an online investment platform, which enables investors to deposit and withdraw from the ICEA Lion’s Money Market Fund. 

According to the Asset Managers, reduced loan loss provisioning and rebound in loan payments, promises to strengthen the fundamentals of the sector.

“For the first time in five years, we expect private sector credit to hit double digits in 2021. There are a lot of hungry banks out there looking to take opportunities having been starved off high returns under disruptions emerging in the past five years including the rate cap regime and the COVID-19 pandemic,” stated ICEA Asset Manager’s Head of Research Judd Murigi.

“Consequently, the pandemic offers banks the opportunity to increase their lending appetite for SMEs, by availing working capital facilities for them to get back on their feet, grow and help in resuscitating the economy,” he added.

In 2020, according to Cytonn Investments markets review, Kenyan equities market was on a downward trajectory, with NASI, NSE 25, and NSE 20 declining by 8.6%, 16.7%, and 29.6%, respectively.

Large-cap decliners during the year included Bamburi, Equity Group, Diamond Trust Bank, KCB Group, and Standard Chartered which declined by 52.7%, 31.7%, 31.2%, 29.4%, and 28.8%, respectively.

“Key to note, Safaricom recorded gains of 8.7% YTD as they benefited from the working from home environment and increased digitization trends. Safaricom continues to be a key part of Kenyan equities portfolios, accounting for 59.6% of Nairobi Stock Exchange (NSE’s) market capitalization and has dominated on both the market turnover and in determining the direction of the market given its weight and liquidity in the Nairobi Securities Exchange,” the report noted.