KCB is seen as having strong grip on the corporate and retail market segments, keeping its total interest income high.
Investment bankers at Exotix have put KCB Group #ticker:KCB on top of a list of lenders within frontier markets with projected high returns this year on account of falling operating and funding costs.
The analysts said in the latest report on the banking industry that the Nairobi Securities Exchange (NSE)-listed is among 56 banks in frontier markets — which includes countries with relatively liquid albeit relatively small securities markets — that will perform well even in the face of challenges such as rate caps and bad debts.
KCB is seen as having strong grip on the corporate and retail market segments, keeping its total interest income high.
It is able to access cheap retail deposits and has negotiating capacity with corporate entities, Exotix said. Other banks on the list are CFC Stanbic #ticker:CFC, Barclays #ticker:BBK and NIC Bank #ticker:NIC.
With the bank able to access cheap retail deposits and possessing negotiating capacity with corporates, we expect the bank to sustain NIM (net interest margin) above 8.5 per cent and outperform its peers. With this, we expect net interest income to average 10 per cent growth over the next three years,” said Exotix in the report prepared by among other analysts Anul Shah.
Apart from Kenya, Exotix analysts’ top recommendation to investors for purposes of buying stocks is Pakistan, another frontier market.
The Kenyan main 20-share index rose by 16.5 per cent last year and opened this year at 3704.51 points, rising marginally to hit 3708.75 points by last Friday.
Seeing it giving double-digit return on equity (ROE), Exotix reckons that KCB share (trading at the Sh44 range) price has potential to rise to Sh51 representing an upside of 15.3 per cent.
“Using a cost of equity of 17 per cent, our valuation for KCB gives our target price of Sh51, representing (15.3) per cent upside. We forecast ROE to average 18.2 per cent over the next three years,” said Exotix. Another factor that will help KCB Group is its ability to retain government deposits even if there are changes on how these are managed as has been proposed by some MPs, Exotix said.
However, the bank remains exposed to the risk of new asset quality issues, namely, defaults, given that its bad loans are already at eight per cent, they said.
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