Top bank owners booked billions of shillings in capital gains at the Nairobi Securities Exchange (NSE) in the past one year, defying the difficult operating environment that has been subdued by the coming into force of a law capping interest rates and the politics-driven slowdown of the economy.
Latest NSE data shows that the market capitalisation or investor wealth in the 11 listed lenders rallied by 48 per cent or Sh229 billion in the last 12 months to Sh704 billion – significantly increasing paper wealth of top owners.
Billionaire bank chief executives James Mwangi of Equity Bank #ticker:EQTY and Gideon Muriuki of Co-operative Bank #ticker:COOP, the Ndegwa family of NIC Bank #ticker:NIC and other high net worth investors such as Baloobhai Patel, who has a stake in Co-operative, Barclays #ticker:BBK and DTB #ticker:DTK, have been the big beneficiaries of the share price rally.
Mr Mwangi, who holds a direct stake of 3.4 per cent in Equity as per the latest available data dated December 2016, has seen the value of his stake rise Sh2.06 billion to Sh5.52 billion, in line with the Equity share’s 59 per cent rally to Sh43 a share.
Mr Muriuki’s 110.3 million shares in Co-operative, equivalent to 1.88 per cent of the lender’s issued shares, are now worth Sh1.91 billion having gained Sh700 million above its worth a year earlier.
In February last year, the Co-op Bank CEO held 100.2 million shares, then equivalent to 2.05 per cent of the lenders stock.
The bank approved 977 million new shares in a one-for-five bonus last May, giving Mr Muriuki an additional 20.1 million units, meaning he has sold some 9.9 million shares since the bonus was issued. Co-operative’s stock has gained 44 per cent to Sh17.30 in the past 12 months.
Meanwhile, the Ndegwa family, which owns a quarter of NIC Bank, has seen the value of their 160 million shares rise by Sh1.44 billion to Sh5.72 billion. The bank’s stock is up 34 per cent to Sh35.75 since February 2017.
Tough business environment
The gains in bank stocks came in spite of a difficult operating environment that has seen the lenders’ interest income fall due to the rate cap and demand for loans plummet, slowing down profitability.
Analysts said that the sharp dip in share prices that followed the coming into effect of the rate cap law in August 2016 meant that bank stocks offered very attractive entry points in February last year.
The stocks were therefore able to attract demand, especially from foreign investors, setting off the rally that has culminated to the present capital gains.
“The banking trading multiples offered a very attractive entry point in February 2017 because we hadn’t seen these levels in years. The median price to earnings, price to book and dividend yields were at 4.6 times, 0.9 times and 6.4 per cent respectively…in essence political risk had also been factored in the prices and there was still capital gains upside,” said Dyer & Blair Investment Bank head of research Linet Muriungi.
Ms Muriungi said that the rally has been sustained this year because investors are seeing the possibility of the rate cap law being repealed, sparking a possible revival of the outsized bank profits of the pre rate caps levels.
This would bode well for the wealthy long term investors, who held on to their shares through the rate cap dip.
Baloobhai Patel, who holds stakes in Co-operative Bank, Barclays and DTB, has seen the value of his shares in the three lenders hit Sh678.1 million, largely due to his move to raise his stake in Co-operative from 5.8 million shares to 25.2 million last September, and the one-year share price gain in DTB from Sh107 to Sh209.
In February last year, his stock in the three lenders were worth Sh215.8 million.
Equity Bank chairman Peter Munga’s 0.4 per cent (15.1 million shares) stake in the lender is now valued at Sh649.3 million, from Sh407.6 million a year ago.
The Babla family, which has a 1.55 per cent shareholding in KCB, has booked paper gains of Sh970 million on their holding which is now valued at Sh2.16 billion.
The lender’s stock is up 82 per cent in the past one year, gaining Sh20.50 to stand at Sh45.50.