Non-performing loans have hit 12.7 per cent of total loans while return on average equity (ROaE) is expected to stand at 14 per cent this year.
Dyer and Blair Investment Bank has recommended a “hold” on the bank, noting the rising NPLs and loan loss provisions.
Listed I&M Bank #ticker:I&M could be headed for lower return on shareholder funds with its increasing non-performing loans (NPLs) and lower net interest margins, analysts at Genghis Capital say.
The NPLs have hit 12.7 per cent of total loans while return on average equity (ROaE) is expected to stand at 14 per cent this year against 16.6 per cent the previous period.
The analysts said the bank has therefore limited upward potential (0.9 per cent) in terms of pricing on the Nairobi Securities Exchange (NSE) on reaching Sh126.18 a share.
However, since the completion of the analysis on May 29, the share price has actually fallen by an even bigger amount, about Sh18 to stand at Sh110 on Thursday.
“We highlight the bank’s high NPL ratios (12.7 per cent) and the low net interest margins (7.4 per cent). Overall, we estimate ROaE of 14 per cent against 16.6 per cent in financial year 2017,” said Genghis Capital.
In view of the challenges facing the financier, the analysts recommended a ‘hold’ to investors.
“We reiterate a ‘hold’ recommendation on I&M Holdings Limited. This is based on a target price of Sh126.18, which represents a 0.9 per cent upside potential,” said the analysts.
Dyer and Blair Investment Bank also recommended a “hold” on the bank, noting the rising NPLs and loan loss provisions.
“Gross non-performing loans (NPLs) rose 134.4 per cent year-on-year to Sh22.4 billion: Loan loss provisions expense stood at Sh578.3 million for first quarter 2018 compared to Sh282.7 million in the same period in 2017. NPL ratio spiked 648 bps y-o-y to 12.8 per cent while NPL coverage shed 886 basis points y-o-y to 23.8 per cent,” said Dyer and Blair.
The company’s gross NPLs more than doubled to Sh17.7 billion last year from Sh8.2 billion in 2016.
At the end of the first quarter of this year, gross NPLs had risen further to Sh20.3 billion.
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