Bank stocks surge propels NSE past Sh2 trillion mark
An investor at the Nairobi Securities Exchange. The bourse has hit the Sh2 trillion mark. Photo/Diana Ngila
What you need to know:
Lenders benefit from positive investor sentiments ahead of reporting season.
Equity Bank led the share price surge with a cumulative market gain of Sh7.4 billion followed by Diamond Trust Bank, which rose by Sh6.6 billion and Co-operative Bank with Sh5.6 billion.
KCB and Equity have in the past two weeks been under selling pressure from foreign investors that have resulted in some share price fluctuations.
CFC Stanbic defied heavy selling pressure from foreign investors to add Sh11 to its share price, making it the third most valued bank stock at the bourse.
Bank stocks surged by Sh30 billion in the first 24 days of 2014 at the Nairobi bourse, helping propel cumulative investor wealth past the Sh2 trillion mark.
The lenders opened the year with a collective market value of Sh690.6 billion but had clocked Sh720.8 billion by close of trading on Friday, riding on steady appreciation of stock prices in the first three weeks of the year.
Equity Bank led the share price surge with a cumulative market gain of Sh7.4 billion followed by Diamond Trust Bank, which rose by Sh6.6 billion and Co-operative Bank with Sh5.6 billion.
The sterling performance of bank stocks came in the wake of clear signals that the lenders were headed for record 2013 profits, having surpassed 2012 results by end of November.
“Mid-tier banks have performed particularly well this year, helped by lower cost of funds compared to the previous year,” said Kestrel Capital markets analyst Kuria Kamau.
That means the recent appreciation of bank stocks is driven by investors who are taking positions ahead of the announcement of full-year results beginning next week.
Barclays Bank is expected to open the accounting season with the announcement of results on February 6.
Safaricom, the only technology stock at the Nairobi bourse following last year’s delisting of AccessKenya, has, however, been the pacesetter.
The company, which is Kenya’s leading telecoms operator, grew its market value by a whopping Sh64 billion in the first 24 days of the year to stand at Sh498 billion or more than double the valuation of the second-largest company at the bourse EABL.
At Sh498 billion, Safaricom is worth a quarter of all the listed shares at the NSE, making it a key determinant of the overall market performance that now stands at Sh2.02 trillion.
Market insiders say investors are increasingly buying stocks in anticipation that the Treasury’s plan to issue a sovereign bond will pull down interest rates, leaving equities as the only place to expect high returns.
Of the banking stocks, only KCB has registered decline in valuation this year, dropping Sh4.4 billion to stand at Sh136.6 billion compared to a market capitalisation of Sh141 billion at the beginning of the year. The lender’s share price dipped Sh1.50 in the first 24 days of the year to stand at Sh45.75.
KCB, however, remains the biggest bank by market valuation and the bourse’s third-largest company that is worth Sh15 billion more than its closest rival Equity.
It remains to be seen whether the banks will reward their shareholders with higher dividends from the expected record profits given that they have to comply with new rules that demand higher capital adequacy ratios beginning June.
“The well-capitalised banks will continue paying high dividends but those that are not may have to retain profits to meet the new conditions unless they have other means of raising capital,” said Vimal Parmar, the head of research at Burbidge Capital.
Analysts at Genghis Capital expect banks to continue rewarding their shareholders with high dividend payouts -- having been aware of the new capital requirements two years ago.
“In 2012 many banks raised capital in anticipation of the Basel II [capital] requirements and one should expect that it should not affect shareholders this late in the day,” said Silha Rasugu, a research analyst at Genghis.
KCB and Equity have in the past two weeks been under selling pressure from foreign investors that have resulted in some share price fluctuations.
Equity has been the biggest gainer in terms of share price, having moved to Sh32.75 at the close of trading on Friday from Sh30.75 at the beginning of the year.
Co-operative Bank also posted impressive share price gain, having added Sh1.35 in the first three weeks of the year for a total market valuation of Sh80 billion.
CFC Stanbic defied heavy selling pressure from foreign investors to add Sh11 to its share price, making it the third most valued bank stock at the bourse.
“CFC Stanbic bank is one of a number of companies that have or nearly breached the ceiling, including BAT Kenya and Standard Chartered Bank,” said Standard Investment Bank in a note to investors.
I&M Holdings and Barclays added Sh4.7 billion and Sh2.9 billion to their market valuation respectively during the period.
Banks that have subsidiaries in South Sudan may, however, have to contend with lower income in the medium term as the country grapples with the recent outbreak of civil strife that has displaced thousands from their homes and widespread looting.
The list of Kenyan banks with operations in South Sudan includes KCB, Equity, Cooperative Bank and CFC Stanbic.
Mr Kamau said that the effect of the South Sudan crisis on bank profits is unlikely to be seen in the full-year results but in first quarter of 2014.
The insurance segment of the Nairobi bourse gained Sh14.4 billion this year to stand at Sh100 billion, while the commercial and allied segment rose Sh4.2 billion to Sh117.7 billion.
Investors who have put their money in the manufacturing sector, however, saw the value of their wealth decline by Sh9.6 billion.
Beer brewer EABL registered the biggest erosion in share price value, losing Sh4.7 billion in three weeks. It was followed by BAT, which fell by Sh4.1 billion, and Carbacid, which shed Sh1.9 billion in 24 days.
