UK-based analysts Exotix forecast higher net earnings in banking sector after law review.
Exotix said KCB Group would get an uplift of 8.30 percentage points in its return on equity (RoE or net profit as a proportion of shareholders’ funds) to 26.3 per cent from access to low cost of funds.
Equity Bank would benefit most from its huge loan book derived from small and medium enterprises to hit a RoE of 29.7 per cent — 8.9 percentage points higher.
KCB Group and Equity bank are likely to be the biggest beneficiaries of a review of the restrictions on interest rates due to cheap deposits and large loan books.
London-based Exotix, an investment bank with an office in Nairobi, said KCB Group would get an uplift of 8.30 percentage points in its return on equity (RoE or net profit as a proportion of shareholders’ funds) to 26.3 per cent from access to low cost of funds.
Equity Bank would benefit most from its huge loan book derived from small and medium enterprises to hit a RoE of 29.7 per cent — 8.9 percentage points higher.
The analysts looked at the pre-rate cap quarter, July-September 2016, to estimate how a repealed regime would affect the banks.
However, it noted that KCB’s uplift could end up slightly lower because the second quarter of 2016 recorded a lower cost of funds than usual.
“KCB and Equity Group would be the biggest beneficiaries of a repeal...In the first scenario, KCB records the highest RoE uplift of 830bps to 26.3 per cent, mainly due to the low cost of funds. In the second scenario, Equity Group records the highest RoE uplift of 890bps to 29.7 per cent, boosted by the bank’s large SME book (70 per cent of loan book),” said Exotix.
Overall, the analysts see the sector having higher RoE once the cap goes, but adds that there is no reason to believe that the valuations achieved before the cap in 2016 can return.
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