The Standard Investment Bank (SIB) expects NCBA Group to increase dividend payout hinged on higher cost efficiencies and reduced cost of funding.
SIB says NCBA, the merged entity of NIC Bank and Commercial Bank of Africa (CBA), has resulted in a tier I bank that will realise cost-saving, releasing more money to shareholders.
“We see a slight increase in dividend payout — blended payout improves from 20 percent to about 25 percent in our estimate, with CBA being the catalyst for a higher payout,” said SIB in an outlook note.
Overall, SIB says the merger transaction has resulted in between 10 percent and 15 percent growth in earnings to NIC Group shareholders who swapped their shares during the deal. This is on assumption that all businesses remain as they are.
The merged entity is also being tipped to shrink its cost of funding in the mid to long term as it expands its retail business. The tier II status of NIC had seen it access deposits at weighted average interest rate of 4.8 percent.
However, a higher capital expenditure is expected in coming years with expansion, while higher operating expenditure is expected to be sustained over the coming year to support post-merger branding activities.
NIC net profit for the nine months fell 3.3 percent to Sh3.1 billion as it booked Sh344.2 million merger costs. However, CBA’s profit grew 37 percent to Sh4.6 billion despite Sh300 million merger costs.
SIB says a liquidity ratio of 53.3 percent for CBA and 49.7 percent for NIC, makes the combined entity well placed to take advantage of lending activities post rate cap.
This is expected to boost its interest margin with M-Shwari and Fuliza products driving growth in non-funded income.
Both banks witnessed a deterioration in non-performing loans (NLPs) in the third quarter. CBA recorded an NPL ratio of 10.4 percent, an increase from 9.7 percent while that of NIC moved from 13.3 percent to 14.6 percent.
“We don’t see a downside to NPL ratio in the near term in view of the Government’s efforts to settle outstanding bills though,” said SIB.