With all top 5 banks now having released their 2011 half year results, I did a review of their performance across different banking and business indicators.
I also analysed their performance against the entire banking industry’s Half Year performance
The total banking sector deposit accounts was 12.8 Million from 10.1 Million
Co-op registered a growth of 57% and now has 2.2 Million accounts
Equity with 6.3 Million accounts, a 28% growth, accounts for 49% of all accounts
Profitability
From the 1st Quarter 2011, The Co-operative Bank of Kenya (Co-op) managed to move above Standard Chartered Bank of Kenya (SCBK) into position 4 in Profit Before Tax. Co-op’s Kshs. 4.1 Billion, a 42% rise from the 2010 half year, was significantly more than SCBK’s Kshs. 3.5 Billion, a slump of 14%
The Top 3 positions remained unchanged from the 1st Quarter results. Equity Bank, Kenya Commercial Bank (KCB) and Barclays Bank of Kenya (BBK) occupied the Top 3 positions with Profit Before Tax figures of Kshs. 5.84 Billion, Kshs. 5.74 Billion and Kshs. 5.35 Billion respectively.
Pre-tax profitability for the total banking industry for the half year period to 30th June rose 16.9% to Kshs. 40.8 Billion
The Top 5 Listed Banks (Henceforth referred to as ‘The Top 5’) though grew at a much faster pace than the industry as a whole. Profitability grew 24.2% from Kshs. 19.8 Billion to Kshs. 24.5 Billion.
This figure represents 60% of all banking sector profits, up from 56.6% in the 2010 half year. Such is the dominance of The Top 5
Customer Deposits
Total banking deposit base increased by 16.7% to Kshs. 1.4 Trillion from Kshs. 1.2 Trillion
KCB remains well ahead of other banks in Customer deposits. Its deposits of Kshs. 215 Billion, which grew 12.4% in comparison to HY 2010, are nearly double SCBK’s deposits of Kshs. 109 Billion.
Equity Bank though grew its deposits the by 59.4%, the highest among The Top 5. Its deposits now stand at Kshs. 124 Billion
BBK, recorded a 1.6% decline in deposits to Kshs. 128.4 Billion
Cumulatively, The Top 5 had deposits of Kshs. 708 Billion or 50.65% of total banking sector deposits. This was slightly down from 51.4% in HY 2010
Net Loans and Advances
SCBK grew their net loans and advances by 66.6% to Kshs. 83.7 Billion. They however still possess the smallest loan book among The Top 5. KCB again comes out on top with a loan book of Kshs. 175 Billion, which grew 34.8%. This is nearly Kshs. 78 Billion more than its nearest competitor Equity Bank, for whom a 43.2% gain saw its advances grow to Kshs. 97.7 Billion
BBK’s loan book was flat at Kshs. 92 Billion, no doubt a major cause of concern for investors, as its peers saw their advances grow by double digits
The total loan book of The Top 5 grew 32.5% or Kshs. 133.5 Billion to Kshs. 543.5 Billion
The quality of the loan book for The Top 5, measured as a proportion of net non performing loans to net loans and advances, improved to 2% from 3.15%
Balance Sheet
Top 5 total assets grew by 20.35% to Kshs. 945.7 Billion, lower than the entire banking sector which grew 26.7% to Kshs. 1.9 Trillion.
KCB, with an asset base of nearly Kshs. 280 Billion, comes out top
BBK grew its total assets by 2.2% to Kshs. 176.5 Billion
SCBK, Co-op, and Equity saw their total assets increase by 16.8%, 23.4%, and 39.9% to Kshs. 153 Billion, Kshs. 165 Billion and Kshs. 171 Billion respectively
The Top 5 hold just under 50% of all banking sector assets
Subsidiaries
Co-op bank’s subsidiaries contributed more than double what they did in HY 2010, when they made Kshs. 62.8 Million. In H1 2011, they contributed Kshs. 153 Million in Profit Before Tax.
Kingdom Securities Limited made a Profit Before Tax of Kshs. 25.2 Million, a growth of 65.8%
Co-op Trust Investment Services Limited, which has a portfolio of Kshs. 25.8 Billion, made a Profit Before Tax of Kshs. 34.4 Million
Co-op Consultancy Limited meanwhile, had a Profit Before Tax of Kshs. 3.2 Million
KCB and Equity Banks’ subsidiaries moved from loss-making into the profit zone. KCB’s subsidiaries contributed Kshs. 320 Million in Profit Before Tax while Equity’s, which plans to invest Kshs. 1 Billion in Rwanda and Kshs. 1.5 Billion in Tanzania, made Kshs. 623 Million
Interest Expenses
The half saw significant decrease in the cost of funds as aggregate interest expenses for The Top 5 went down by 30.6%
SCBK and BBK both managed to cut their Total Interest Expense by over 50%.
Co-op had the highest interest expenses at Kshs. 1.3 Billion, a reduction of 10% over the previous period.
KCB managed to reduce its Interest Expenses by 42.3% to Kshs. 1.25 Billion
Equity saw a 3.7% rise in its Interest Expenses to 1.04 Billion.
Government Securities
2011 so far has been plagued by a rise in the rate of inflation and the weakening of the Kenya Shilling against major world currencies.
High rates had the effect of devaluing bond portfolios held by banks and some, like SCBK revalued their bond portfolios, which hit their performance hard. SCBK reduced its investment in Government Securities (Kenya Government Securities plus Other Securities held for dealing purposes) by 40.4% to Kshs. 31.5 Billion from Kshs. 52.8 Billion, and focused its attention to customers by ramping up its lending by 66.6%
Last year banks made huge gains in bond trading, but this year it promises to be an entirely different affair
Co-op, KCB and Equity saw a drop in ‘Other Income’ under Other Operating Income
BBK moved from a loss of Kshs. 48 Million in ‘Other Income’ to a gain of Kshs. 325 Million
Operational Efficiency
SCBK had the lowest Cost to Income ratio at 51.37%. This however declined from 42.53% in HY 2010
The other Top 5 all had declines of in their Cost to Income ratio.
KCB’s was highest with 66%, down from 69.6% last year
Inflation & The Kenya Shilling
In the year to date, the shilling has lost 16.7% against the dollar. Its undoing has mainly been strong dollar demand and what some see as inaction by the Central Bank of Kenya (CBK) in effecting monetary policy. CBK also blamed ‘speculation’ by local banks in the FOREX market
Inflation in August rose for the 10th consecutive month to 16.67% in August. In January 2011, the figure was 5.4%
Interbank lending rates rose quickly to above 20% after the CBK tightened the overnight borrowing rules to support the shilling, increasing the cost of borrowing for the Government.
Recently, Fitch Credit Rating warned that Kenya’s credit rating could be downgraded from the current B+ rating, thereby raising the country’s cost of borrowing
Bankers have warned of a looming rise in lending rates due to the rise of the cost of funds. Fears of loan defaults are also on the up
Indeed, on 1st September 2011, BBK announced that it had raised its minimum lending rate on shilling-denominated loans to 14.75% from 13.75% citing “rising cost of mobilizing deposits” The bank also aims to cushion itself against high inflation
This move follows other banks which started doing the same from July. Among the first to do so was Commercial Bank of Africa which raised the interest it charges on loans to 14% from 13% barely 3 months after it had cut the same
The most recent move by CBK to tackle the problem is to allow banks to maintain the prevailing Cash Reserve Ratio of 4.75% on a monthly basis, though this must not fall below 3% at any one time, provided the overall average for the month is at least 4.75%. This will have the effect of injecting some more cash into the economy
Agency Banking
CBK has approved 6 banks to undertake agency banking with a total of 6,513 agents being approved as at 30th June 2011
Co-op has 440 agents, with a view of 2000 by year end
KCB has 1400 agents while Equity Bank has 2300 agents approved.
Agency banking is expected to significantly cut costs of the brick and mortar expansion of banks have been on in the past couple of years, and more importantly reach the ‘unbanked’ of the population who have been excluded from financial services
Valuations
Return on Equity | Market Capitalisation Kshs. | Forward Price:Earnings Ratio | |
Standard Chartered Bank of Kenya | 27.8% | 58.3 BILLION | 11.65 |
Co-operative Bank of Kenya | 33.1% | 49.9 BILLION | 7.53 |
Barclays Bank of Kenya | 27.2% | 70.3 BILLION | 9.66 |
Kenya Commercial Bank | 21.1% | 58.7 BILLION | 7.24 |
Equity Bank | 32.6% | 71.8 BILLION | 7.58 |
Note: Market Capitalisation and Forward P.E’s were calculated using prices as at Tuesday 30th August 2011. The Return on Equity is as per the Half Year 2011 results
Outlook for the Second Half
The high lending and inflation rates seriously threaten to spoil the party for banks.
They will however weather the storm and post robust full year growth, though likely lower than the first half
Agency Banking and regional subsidiaries will be key to future profitability, not just for the 2nd Half, which will see focus turned on local banks that have or already have a regional agenda
Tabular Summaries of The Top 5’s Half Year
EQUITY BANK GROUP | KENYA COMMERCIAL BANK GROUP | BARCLAYS BANK OF KENYA | THE CO-OPERATIVE BANK OF KENYA | STANDARD CHARTERED BANK OF KENYA | |
TOTAL ASSETS | 171.35 BILLION | 279.7 BILLION | 176.5 BILLION | 164.8 BILLION | 153.3 BILLION |
NET LOANS AND ADVANCES | 97.71 BILLION | 175.2 BILLION | 91.8 BILLION | 95 BILLION | 83.7 BILLION |
CUSTOMER DEPOSITS | 130 BILLION | 215.7 BILLION | 128.4 BILLION | 130.7 BILLION | 109 BILLION |
LOAN:DEPOSIT RATIO | 75.2% | 81.2% | 71.5% | 72.8% | 76.61% |
TOTAL INTEREST INCOME | 8.31 BILLION | 11.8 BILLION | 7.8 BILLION | 7.3 BILLION | 5.08 BILLION |
TOTAL INTEREST EXPENSE | 1.04 BILLION | 1.2 BILLION | 414 MILLION | 1.33 BILLION | 523 MILLION |
NET INTEREST INCOME | 7.27 BILLION | 10.5 BILLION | 7.4 BILLION | 5.96 BILLION | 4.5 BILLION |
TOTAL OPERATING INCOME | 13.15 BILLION | 16.9 BILLION | 12.5 BILLION | 9.3 BILLION | 7.13 BILLION |
TOTAL OPERATING EXPENSE | 7.36 BILLION | 11.1 BILLION | 7.1 BILLION | 5.3 BILLION | 3.66 BILLION |
COST:INCOME RATIO | 55.6% | 66% | 57.2% | 56.5% | 51.37% |
NET NON PERFORMING LOANS | 1.98 BILLION | 6.15 BILLION | 807 MILLION | 1.45 BILLION | 313 MILLION |
PROFIT BEFORE TAX | 5.84 BILLION | 5.7 BILLION | 5.35 BILLION | 4.15 BILLION | 3.5 BILLION |
PROFIT AFTER TAX | 4.74 BILLION | 4.1 BILLION | 3.6 BILLION | 3.31 BILLION | 2.5 BILLION |
EQUITY BANK GROUP | KENYA COMMERCIAL BANK GROUP | BARCLAYS BANK OF KENYA | THE CO-OPERATIVE BANK OF KENYA | STANDARD CHARTERED BANK OF KENYA | |
TOTAL ASSETS | +39.9% | +31.3% | +2.2% | +23.4% | +16.8% |
NET LOANS AND ADVANCES | +43.2% | +34.8% | +0.3% | +35.8% | +66.6% |
CUSTOMER DEPOSITS | +59.4% | +12.4% | -1.6% | +19.2% | +10.5% |
LOAN:DEPOSIT RATIO | -2.5% | +19.9% | +1.4% | +8.9% | +25.8% |
TOTAL INTEREST INCOME | +29.4% | +7.9% | -15.5% | +31.5% | +0.6% |
TOTAL INTEREST EXPENSE | +3.7% | -42.3% | -52.4% | -9.7% | -50.4% |
NET INTEREST INCOME | +34.2% | +20.3% | -11.6% | +46.4% | +12.4% |
TOTAL OPERATING INCOME | +30% | +21.9% | -5.5% | +33.1% | +1.2% |
TOTAL OPERATING EXPENSE | +16.5% | +15.5% | -15.6% | +28.7% | +22.2% |
COST:INCOME RATIO | -6.4% | -5.2% | -6.8% | -2% | +8.8% |
NET NON PERFORMING LOANS | -23.3% | +0.2% | -56.1% | -14.4% | -50% |
PROFIT BEFORE TAX | +51.8% | +36.4% | +12.6% | +42.4% | -14.4% |
PROFIT AFTER TAX | +57.4% | +41.6% | -2% | +41.3% | -11.9% |
Nice analysis!
ReplyDeleteGood stuff. Why have the banking stocks taken a beating so far despite the impressive returns? Wish to follow me find me @ http://tsavosecurities.blogspot.com/
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