The Kenyatta family, the family of former Central Bank governor Philip Ndegwa and Equity Group chief executive James Mwangi have each gained more than Sh1 billion over the past two weeks after a surge in bank share prices on news of a push to remove the cap on commercial lending rates.
Mr Mwangi leads the pack after his five percent stake in Equity Bank gained Sh1.6 billion since October 18 when news leaked that President Uhuru Kenyatta had asked that lawmakers remove the cap on lending rates. His stake in the bank is worth Sh8.7 billion, underlining his position as one of Kenya’s wealthiest entrepreneurs.
He was followed by the Kenyatta family, whose 13.2 percent stake in NCBA Group has increased by Sh1.08 billion since their shares were listed at the Nairobi bourse on October 22, pushing their wealth in the bank to Sh7.7 billion.
NCBA emerged following the merger between the listed NIC Bank and the private CBA Group, and the merged shares including those owned by the Kenyatta family started trading on the bourse last Tuesday.
The Ndegwa family, which owns 12 percent of the merged bank, have seen their paper wealth in the lender increase Sh1 billion to hit Sh6.8 billion.
Kenyan bank shares stepped up their rally on Wednesday after news that Parliament has inched closer to lifting a cap on commercial interest rates.
The National Assembly’s Finance Committee said in a report on Tuesday that lawmakers should lift the cap after Mr Kenyatta refused to sign the government’s Finance Bill for this fiscal year until the House removes the cap.
Nine of the 10 banks listed on the Nairobi Securities Exchange (NSE) have witnessed a rally with six of them recording double-digit gains over the two weeks, adding Sh107 billion to the wealth of investors who own the lenders.
“We expect banking stocks to rally as their profitability prospects improve following the removal of rate caps,” investment bank AIB Capital said in a research note.
AIB said it expects lending and bank profitability – based on higher margins on loans — to rise if the lending controls are abolished.
Equity has risen 23.6 percent over the two weeks to close trading at Sh46.50 yesterday, while Barclays Kenya jumped 19.3 percent to trade at Sh13.30.
KCB Group gained 21.5 percent, NCBA (16.3 percent) and Co-operative Bank surged 16.9 percent, which saw the 1.7 percent stake held by its CEO, Gideon Muriuki, rise Sh209 million pushing his worth in the lender to Sh1.4 billion.
Parliament will vote on whether to accept the Finance Committee’s recommendations next Tuesday.
Lawmakers have the option of removing the cap from the Bill or overruling the President if two-thirds of the 349 members vote to override his position.
But investors have rushed to buy the lenders’ stocks at the Nairobi bourse on anticipation of increased gains in coming days as others eye long-term gains in the form of dividends.
In 2016, the government limited rates banks can charge customers to four percentage points above the central bank’s benchmark - currently nine percent - saying it was concerned about high rates.
This restricted loan costs to a maximum of 13 percent, triggering a credit crunch as commercial banks cut off millions of low-income customers and small businesses deemed as too risky.
The cap also made bank stocks unattractive to investors seeking capital gains at the bourse.
Before introduction of rate caps, banks’ interest rates rose up to 25 percent in what guaranteed the lenders double-digit profit and dividend growth . This cemented the lenders’ stocks as crown jewels at the NSE.
The banking sector’s financial performance data for the past four years shows that the lenders have managed to recover their footing after the initial hit from the rate cap, largely by turning to risk-free government lending and aggressively cutting costs.
Banks raised their investment in government debt paper by more than Sh500 billion to Sh1.5 trillion, but have also been met by falling rates on the fixed income securities.
Equity and Standard Chartered Bank (Kenya), which have some of the highest cash reserves, are seen as best placed to take advantage of the return to free floating rates.
Investors have been aggressively buying bank stocks in anticipation of the higher earnings, with the biggest lenders posting the largest price gains.
The biggest beneficiaries of the bank stocks rally include pension funds, wealthy individuals and foreign institutional investors who hold stakes worth billions of shillings.
Further price gains on banking stocks in the coming weeks could help the Nairobi bourse reverse some of the paper losses in the bear market that has lasted five years.
Safaricom, which together with banks account for 73 percent of the value of the bourse, also rallied to hit highs of Sh29.6 yesterday, up from Sh28.90 each on Tuesday.
The House committee is proposing shielding existing loans from any increases in rates if the limits are repealed, according to its report that was issued late on Tuesday.