Tier-one bank stocks have added Sh12.1 billion in market value at the Nairobi Securities Exchange (NSE) over the past one week on rising demand as investors jostle for the higher dividends the lenders are announcing for the year ended December 2023.
Seven out of the nine lenders have made price gains since March 5, when Stanbic Holdings announced a 21.8 percent increase in its dividend for 2023 to Sh6.07 billion or Sh15.35 per share, which is the highest it has ever distributed.
Standard Chartered Bank Kenya also announced an increase of 32 percent in its annual payout to Sh29 per share — also a record high for the bank— when it released its financial results on Tuesday, setting off a price rally on its stock.
Investors are responding to the higher dividend notices from the two multinational lenders to go for more bank stocks in general, hoping to get an attractive entry point which will raise the effective dividend yield if lenders increase their payout levels.
This has seen the collective market capitalisation of tier-one lenders rise to Sh592.7 billion from Sh580.6 billion over the course of the past seven trading sessions, led by Standard Chartered (Sh6.5 billion), NCBA (Sh2.7 billion) and KCB Group (Sh1.6 billion).
Other top gainers are Absa Kenya (Sh814.73 million) and Equity Group (Sh566 million).
“Investors are now more optimistic about bank stocks given the performance of the first two banks that have announced their financials. The overall outlook is that banks remain resilient despite the tough macroeconomic conditions under which they operated in 2023,” said Wesley Manambo, an analyst at Standard Investment Bank.
“Although CBK data showed a fall in overall banking sector profits last year, tier-one banks tend to outperform the sector average…their only concern is liquidity and capital adequacy ratios if they are forced to raise their provisions for bad loans.”
Investors had entered the bank reporting period with reduced expectations of higher dividends after the early disclosures by the Central Bank of Kenya (CBK) showing a fall in 2023 pre-tax profit for the sector by 7.3 percent from Sh244.1 billion to Sh226.3 billion.
The ability of a company to pay dividends has become a key consideration for investors on the NSE due to limited capital gains on stocks over the past few years. Large banks are some of the more consistent companies in making annual distributions, hence the price gains when they signal higher payouts.
The remaining banks are expected to release their full-year financials over the next two weeks ahead of the statutory deadline of March 31.
According to Mr Manambo, the ability of top lenders to attract sticky deposits also confers them an advantage in a difficult market by lowering their overall cost of funds compared to what the smaller lenders pay.
This boosts their net interest income, which is calculated as the difference between interest earnings from loans and government securities and the interest paid on customer deposits.
In 2023, interest income was the biggest driver for higher profits reported by Stanbic and Standard Chartered, reflecting the high-interest rate environment that saw banks raise the average lending rate (before risk premium and fees) from 12.77 percent in January 2023 to 14.63 percent in December 2023.
Stanbic’s net interest income grew by 35.4 percent to Sh25.6 billion, as loans and advances to customers rose from Sh266.83 billion to Sh356.2 billion at the end of December. Non-funded income — mainly drawn from fees and commissions — rose by 19.3 percent to Sh15.67 billion.
As a result, the lender’s net profit rose by 34.2 percent to Sh12.16 billion, from Sh9.06 billion posted in the preceding year.
StanChart reported a 15 percent increase in its 2023 net profit to Sh13.8 billion, mainly backed by a 32 percent increase in net interest income to Sh29.3 billion.
