Banks dominate trade ahead of quarter one results

Expectations of quarter one financials for banks have lifted the lenders’ trading volumes at the stock exchange, as investors take positions before announcements beginning next week.

Trading of the 10 listed banks constituted nearly half (49 per cent) of last week’s market turnover, with KCB and Equity being the biggest movers.

“More (trading) is expected on speculation. KCB and Equity will remain favourite investors’ picks backed by their consistent strong performance. We expect active participation by foreign investors,” said Kestrel Capital in a research note to investors.

Kenya’s banking sector has recorded rapid growth in the past eight years owing to vibrant credit growth on the back of infrastructure developments in the country. Total industry profits before tax hit Sh89.5 billion last year.

In the last one month KCB has gained 11.7 per cent, Equity 6.4 per cent, Co-op 2.8 per cent and Standard Chartered 2.2 per cent, indicating investor preference for retail banks.

Regional presence

KCB and Equity Bank have a regional presence. Their subsidiaries which were started in the past four years have started contributing positively to their bottom-lines.

The losing end has seen Barclays shed 13.4 per cent, National Bank 12.2 per cent, NIC 5.3 per cent and CFC 1.2 per cent; while DTB remained unchanged.

The top losers, Barclays and NBK, declared a drop in earnings for the full year 2011 compared to 2010.

NIC, CFC, and DTB have announced plans to raise additional capital to fund regional expansion through rights issues that are expected to dilute current shareholders. Stanchart announced similar plans last week.

Kestrel Capital said it expected a moderate performance from the sector, given its resilience to the high cost of funds-- which it does by widening interest rate spreads. Industry players interviewed by Business Daily were however cautious of the first quarter performances citing high interest expenses, reduced demand for loans and exposure to non-performing loans.

“Outlook is not so good as the effect of high interest rates and liquidity crunch in the market has taken effect, resulting in a slow-down in business especially on the lending side,” said Mr Suprio Sengupta, general manager at I & M Bank.

Standard Investment Bank has warned that banks should brace for a rough patch. “After close to eight straight years of strong sector performance, we think the days of party for all have come to an end.

In our view, in the coming years, the performance hierarchy will be determined by quality of management, brand positioning, capital strength, and regional reach.”