Capital Markets

Banks stocks rise in the wake of lending rate cap

kcb

Customers at a KCB branch in Nairobi. KCB is among lenders whose share prices gained over the past one-and-a-half months. PHOTO | FILE

Summary

  • HF, Cooperative Bank, Equity Bank, KCB, NIC Bank and I&M Bank have made gains of 22.3, 27.7, 15.9, 10.2, 14.6 and 14 per cent respectively since August 29.

Six of the 11 banks listed at the Nairobi Securities Exchange (NSE) have made double-digit percentage gains in share price over the past one-and-a-half months as the sector shows some recovery in the aftermath the interest rate capping law.

NSE data shows HF, Cooperative Bank, Equity Bank, KCB, NIC Bank and I&M Bank have made gains of 22.3, 27.7, 15.9, 10.2, 14.6 and 14 per cent respectively since August 29, when most bank stocks hit the bottom as the market reacted to the new regulations.

However, they remain well below the pre-control highs particularly due to profit taking by recent investors.

The lenders became attractive buy options for many investors once the prices fell by significant margins, with foreign investors especially taking advantage to add on to their bank stock portfolios.

“Investors are looking to buy into banks which have shown that they can continue giving shareholders value under the new rate regime even without too much changing their operational practices,” said Sterling Capital head of research Eric Munywoki.

“These are the banks which have diversified on their non-funded income side and are not overly reliant on the retail business.

‘‘The investors are therefore looking at the lenders on a case by case basis when choosing where to invest.”

In addition to the six lenders which have hit double digit percentage gains, there have also been gains seen on the Stanbic Bank share, up 5.5 per cent over the seven week period, and DTB, up by 1.5 per cent.

Over the period, only Barclays Kenya, which has shed 6.3 per cent in valuation, National Bank at -1.4 per cent and Standard Chartered at -5.3 per cent have lost in share price.

Overall, the 11 listed lenders have made a Sh40 billion gain in market capitalisation since August 29, to stand at Sh494.7 billion last week.

The collective market capitalisation is, however, still Sh72 billion shy of their valuation of Sh567 billion as at August 24, the day President Uhuru Kenyatta signed the rates Bill into law.

READ: Bank stocks lose Sh47bn on first day of trading after loan caps

It shows that the banks still have some way to go before returning to the price levels prior to the new regulation.

On a year-to-date basis, all the 11 banks are in the red — nine of them by double digits. The sector has been one of the worst hit by the bear run that has held the market for over a year, with National Bank the worst performing stock in the segment with a year to date decline of 56 per cent, followed by Barclays at 40 per cent and KCB at 38 per cent.

The direction bank stocks will take is further expected to be clarified by third quarter earnings, which will give a good picture of the dividend season next year.

Only the fourth quarter will be affected by the rate capping with most listed banks expected to take some haircuts.