A trader monitors stocks at the NSE. Bank shares outperformed the NSE 20-Share Index in the one year to May 2013. Photo/ FILE
What you need to know:
A research report by Standard Investment Bank (SIB) shows the bank index appreciated by 68.5 per cent in the 12 months to May 2013, double the rate of growth of the NSE 20-Share Index.
Bank shares outperformed the NSE 20-Share Index in the one year to May 2013, reflecting investors’ confidence in the potential of the sector to maintain its robust growth momentum.
A research report by Standard Investment Bank (SIB) shows the bank index appreciated by 68.5 per cent in the 12 months to May 2013, double the rate of growth of the NSE 20-Share Index which appreciated by 33 per cent in the same period.
The local bank index also outperformed the MCSI Emerging Markets Bank Index, which gained 21.3 per cent in the period.
The growth was in spite of credit to the private sector falling to low of 7.1 per cent during the period under review- in October 2012- and taking into account the disruption caused by the tightly contested general elections.
Kenya Commercial Bank dominated share trading in the sector in the year, registering trades worth Sh9.7 billion ($114.3 million) representing 44.4 per cent of the sector total, while gaining 80.4 per cent in value.
“We expect net interest margins in the 2013-14 financial years to remain above historical averages. In spite of continued monetary easing, the pricing parity between base rates and CBR is yet to be restored.
“On costs, we expect realization of gains from staff rationalization initiatives undertaken across the sector in the past three years and efficiencies derived from automation,” said SIB in the report.
The banking sector profit before tax increased by 20.6 per cent from Sh89.5 billion in December 2011 to Sh107.9 billion in December 2012, according to the CBK annual supervision report, underpinning the increased demand for bank shares at the NSE.
SIB upheld its hold recommendation for bank shares as a whole, noting that sector upside stands at 3.1 per cent.
“CFC Stanbic offers highest upside at 52.1 per cent, followed by NIC at 19.7 per cent. We have hold recommendations on KCB (+13.1 per cent), Equity Bank (+9 per cent), Co-op Bank (+7.6 per cent), DTB (0.4 per cent), and sell on Stanchart (-19 per cent) and Barclays (-16.2 per cent),” says SIB.
They expect positive returns from regional businesses to be sustained, noting that in 2012, sector profit before tax from regional operations increased 122 per cent year on year to account for 4.8 per cent of sector profit before tax, up from 2.6 per cent in 2011.
In the 2012 financial results, Equity bank, KCB and CFC Stanbic saw raised contribution to their profit margins from east African subsidiaries.
