Of the top five listed lenders by market capitalisation, Equity Holdings has offered its shareholders the biggest capital gain since 2009 with its value up by a factor of 3.62 times.
In the period, the blue-chip heavy NSE 20 share index has dropped 42 percent of its value, from 3176 points to 1853 today.
The analysis takes into account the last time one of the five lenders — Co-operative Bank — listed at the end of 2008.
If you invested Sh100,000 in shares of each of Kenya’s five largest banks at the end of 2009 and held onto the haul to date, you could have made anywhere between Sh11,000 and Sh262,000, depending on the lender you chose.
Shares of large banks stocks have proven to be among the most resilient at the Nairobi Securities Exchange (NSE) #ticker:NSE in the past decade, largely defying the prolonged bear run that set in from 2015 and hurt share prices across board.
Of the top five listed lenders by market capitalisation, Equity Holdings #ticker:EQTY has offered its shareholders the biggest capital gain since 2009 with its value up by a factor of 3.62 times.
This means that an investment of Sh100,000 in the share in 2009 would be worth Sh362,205 today.
It is followed by KCB #ticker:KCB with a gain of 3.11 times, Co-operative Bank #ticker:COOP at 2.42 times, Standard Chartered #ticker:SCBK at 1.24 and Absa Kenya #ticker:ABSA at 1.11 times. These returns exclude the billions of shillings the lenders have paid their shareholders in dividends over the years.
In the period, the blue-chip heavy NSE 20 share index has dropped 42 percent of its value, from 3176 points to 1853 today.
The analysis takes into account the last time one of the five lenders — Co-operative Bank — listed at the end of 2008.
In the intervening period shareholders of the banks, as is the case with some other blue-chip stocks, have also enjoyed bonus share issuances, seen their stocks split and enjoyed some of the more consistent dividend payments seen at the bourse.
The present market capitalisation of the lenders today thus takes into account the bonus share issuances, which are awarded on pro-rata basis depending on the number of shares one holds.
Share splits in the likes of Absa, Equity, and KCB have also helped improve their liquidity at the stock market, backing more active trading on the stocks which helps with price discovery.
Their listing on the MSCI index has also helped give them the visibility and credibility to attract foreign investor interest, providing a base of demand for their stocks that keeps the share prices elevated.
Foreign investors prefer liquid, blue-chip counters that can support their large ticket trades easily.
The lenders, alongside Safaricom and EABL #ticker:EABL , are the most traded counters on the foreign desk, which accounts for about 55 percent of all traded turnover at the NSE.
The ability to stay afloat in a turbulent market has also been helped by the growing profitability of banks, which have now supplanted manufacturing firms as the most profitable local companies behind only Safaricom #ticker:SCOM .
Safaricom holds the record for net earnings in a single year for a Kenyan company with the Sh73.7 billion it made in the year ended March 2020.
The telco’s policy of paying up to 80 percent of net earnings has helped its share price rise from lows of Sh2.55 in 2009 to the current Sh35.50.
Equity Group reported a net profit of Sh39.1 billion in 2021, a record for the lender and the industry, while KCB also made its highest ever net profit at Sh34.1 billion in the period.
Overall, tier one lenders made a record cumulative net profit of Sh141 billion in 2021, aided by higher interest income from government securities, and non-funded income.
This ability to extract income from the economy even when they aren’t growing their lending to the private sector at an optimum level has meant that investor perception of the sector’s resilience remains positive, thus making their shares attractive.
Banks are also gaining positive investor sentiment from the expectation of stable and sizeable dividend distributions, in a market which has had little joy in terms of capital gains since 2015 due to factors such as political noise, Covid-19 and general investor apathy.
Tier one lenders have announced dividends totalling Sh51.7 billion for the year ended December 2021. They paid Sh18.8 billion in 2020, under tough operating conditions due to Covid-19 which saw them hold on to capital as a buffer against the uncertainty.
In terms of distribution, the lenders have paid between 19 percent and 80 percent of their net earnings in dividends for the period.
Lenders such as Equity and KCB have also enjoyed an aggressive expansion in their balance sheets due to regional expansion, as well as flight to the stability of large banks by depositors following the collapse of Dubai, Imperialm and Chase banks in 2015 and 2016.
Equity and KCB have reaped the most from their regional forays, expanding their balance sheets beyond the Sh1 trillion mark.
Equity’s balance sheet is now worth Sh1.304 trillion, helped by its acquisition of Congo DRC lender Banque Commercial du Congo (BCDC) in 2020.
The Congolese subsidiary, which is now known as EquityBCDC, has added about $2.5 billion (Sh288 billion) to Equity’s balance sheet and is now the lender’s most profitable regional subsidiary.
KCB closed a major regional acquisition last year after acquiring a majority stake in Rwandese lender Banque Populaire du Rwanda (BPR) from London-listed financial services firm Atlas Mara Limited. The lender’s balance sheet rose from Sh987.8 billion in 2020 to Sh1.139 trillion last year.
