Listed banks recorded a one per cent decline in earnings per share (EPS) in 2017 compared to an average growth of 4.4 per cent in a similar period previous year.
The Cytonn 2017 banking sector report says this was on the back of a decline in net interest income following the capping of rates.
“Banks are exploring different avenues of revenue generation such as bancassurance in a bid to increase non-funded income and further diversify their revenue sources, given the introduction of the interest rate cap, which has negatively impacted funded income for banks,” says the report.
The study says KCB Group #ticker:KCB is the most attractive bank for investment. The lender has retained the position since 2015 supported by “a strong franchise value and intrinsic value score”.
Equity Group #ticker:EQTY was ranked second, posting the highest return on equity at 21.6 per cent, while I&M Holdings #ticker:I&M climbed four spots to position three. HF Group #ticker:HFCK was the lowest ranked.
Only National Bank #ticker:NBK and Equity recorded a growth in core earnings per share.
“Key to note is that National Bank restated their 2016 results and benefited from a decline in loan loss provisioning, while Equity Group’s performance was on the back of a 24.2 per cent growth in non-funded income,” said the report.
Caleb Mugendi, investment analyst at Cytonn Investments projected a tougher banking sector market this year on the back on new stringent regulation.