Stockbrokers have put a buy recommendation on most of the banks listed on the Nairobi Securities Exchange, citing increased profitability driven by higher interest rates.
Lenders are set to announce their results for the half-year ended June, with Absa Bank Kenya, Standard Chartered Bank Kenya and NCBA Group due to declare interim dividends.
Analysts say banks' improved earnings put them in a position to overcome higher risks of defaults, partly due to the more finance costs faced by borrowers compared to last year.
Brokers at AIB-AXYS Africa, for instance, have a buy recommendation on six out of the 11 listed banks.
“We expect another month of mixed performance largely driven by investors aligning themselves to dividend-paying counters before book closures and foreigners remaining as net sellers," said analysts at AIB-AXYS Africa.
"However, trading will remain largely concentrated in the blue-chip counters- Safaricom, the banking sector and other select counters driven by the hunt for dividends."
Absa is, for instance, tipped to continue growing its operating income from expansion of its loan book while non-funded income is set to hold up largely from continued growth in foreign trading income.
Approval of risk-based credit pricing for most banks and its subsequent implementation is expected to lift the sector’s interest margins while investments in niche areas such as trade finance are set to cushion non-funded income.
However, banks have been forced to raise their provisioning for actual and anticipated credit losses as gross non-performing loans trend upwards, largely from pending bills accrued by the government to suppliers.
Genghis Capital, meanwhile, says banks are benefiting from ongoing interest rate rise, widening margins for the industry while offsetting pressure from rising loan defaults.
“We are optimistic about large-cap commercial banking counters as interest rate tailwinds propel industry bottom lines, and balance sheet resilience cover against adverse credit risks,” they stated.
Banking stocks already lead the way on shareholder returns from dividends with the dividend yield on most counters standing above 10 percent at present.
