reports
- Faith Mwangi
Diamond Trust Bank: Underwhelming 9M 21 performance as investors remai...
UNDER-PRICED AS INVESTORS SEEK UP-TURN IN KEY STRATEGIC ELEMENTS DTB Group is trading at a PB of 0.2x, a significant discount to the industry average of 1.0x. This is against an ROE of 9.8x for 9M 21. The discounted levels offer an attractive entry point for investors, but the bank does not attract interest because of: 1. DTB's relatively weak net interest margin. Although this has always been an issue for the bank due to preferential pricing for its affiliates, it no longer has the above-se...
- Faith Mwangi
Kenya Banks: Sector Q3 21 PBT jumps 68% yoy, and outlook for Q4 is pos...
Kenya banks' sector-wide profit before tax (PBT) grew 68% yoy in Q3 21, according to the latest data from Central Bank of Kenya. On a cumulative 9M 21 basis, PBT increased 63% yoy. Of our covered banks that have released results, KCB Group leads the pack with a 131% yoy jump in 9M 21 PAT, Equity Group comes in second with a 78% yoy increase and Co-op Bank comes in third with a 19% yoy rise. Some key trends in Q3 21 earnings performance include: 1. Improved asset quality with industry NPL rati...
- Faith Mwangi
Kenya banks: Lucrative SME potential undercut by low yields and asset ...
The Central Bank of Kenya (CBK) has released a new study on small and medium-sized enterprises (SMEs), already an important sector for Kenyan banks but one with a great deal of growth potential. Our key takeaways on what the report means for the banks we cover: 1. SME SEGMENT ACCOUNTS FOR 20% OF INDUSTRY LOANS, BUT THERE IS UNTAPPED POTENTIAL The management teams of the Kenyan banks we cover argue that the SME sector is the next growth frontier. In our view, though, the majority of their loan...
- Faith Mwangi
Diamond Trust Bank: H1 21 – Dismal results but in line with management...
DTB Group released H1 21 results with EPS increasing by 22% yoy to KES10.48. The bank's PBT rose just 9% and was well below the banking sector's average of 42% yoy. Operating income grew just 6% yoy as margins remained subdued and the bank failed to record a significant rise in non-interest revenue. A lower tax charge of 35% (versus 41% in H1 20) boosted the bottom line. WE RETAIN OUR HOLD RECOMMENDATION DTB Group is currently trading at a PB of 0.3x, which is a significant discount to the se...
- Faith Mwangi
Kenya banks: Profit before tax up 97% yoy in first two months of Q2
According to the latest data from Central Bank of Kenya, the country's banks recorded a 97% yoy increase in profit before tax (PBT) for the first two months of Q2 21 (April and May). In the first five months of 2021, PBT increased 42% yoy, which is still a strong performance for the banks. We believe the performance was mainly on the back of three factors: 1. Lower provision charges given that Q2 20 saw banks accelerate their cost of risk to counter the asset quality weakness related to Covi...
- Faith Mwangi
Kenya Tier 1 banks benefit from agency banking surge; Equity Group lea...
According to new Central Bank of Kenya (CBK) data, total agency banking transaction value in H1 21 grew by 52% yoy to KES3.3bn. This was on the back of a 10% yoy rise in registered mobile money accounts to 67mn and a 23% yoy increase in overall agency transaction numbers. The growth in overall transaction values tallies with the continued shift to digital transactions that the pandemic has accelerated. The value per transaction increased by 11% yoy to KES3,029, boosted by clients increasingly...
- Faith Mwangi
Kenya banks: Four ways M&A could transform the sector
In the final report of our series on mergers and acquisitions in Kenya banks – we previously traced its history and concluded that the country is overbanked relative to African peers – we examine the banks we believe would be targets for M&A deals going forward.
- Faith Mwangi
The fourth wave of Kenyan M&A: Lessons from Nigeria and Ghana
Recently, we looked at the history of mergers and acquisitions in the Kenyan banking sector and the coming "fourth wave"; in this report, we examine what the processes of consolidation in Nigeria and Ghana can tell investors about what to expect in Kenya. Relative to other major economies in Africa, Kenya is over-banked, which supports our view that consolidation activity is likely and desirable. By our estimates, if Kenya is to match its peers in the list of the biggest 10 African economies,...
- Faith Mwangi
Diamond Trust Bank: Poor Q1 21 results; investors still punishing stoc...
DTB Group released Q1 21 results with EPS up just 2% to KES6.97. Earnings were hampered by an increase in loan loss provision charge (+68% yoy), which is unlike the trend in other banks. DTB Group has, however, been a historically conservative bank and we believe the accelerated provision is in line with the management’s strategy. Management has forecast FY 21 cost of risk to remain at similar levels to FY 20 at about 3.0%. Non-interest revenue declined by 2% yoy, but similar to other banks, ...
- Faith Mwangi
The complete history of M&A in Kenya banks – the fourth wave is here
In this new series of reports, we consider the theme of mergers and acquisitions in the Kenyan banking sector. In the past decade, there has been a notable increase in consolidation and in this first report in the series, we trace the history of mergers and acquisitions in Kenya banks and identify the drivers of future consolidation activity. Kenya has been through three significant phases of mergers and acquisitions, which were mainly prompted by bank failures. We believe we are now in the f...
- Faith Mwangi
Kenya banks: Regulator ends Covid restructuring regulations, as expect...
The Central Bank of Kenya announced that it will not be extending the regulations allowing restructuring of loans. The allowance to restructure was implemented in March 2020 and it allowed banks to save on capital as some borrowers facing weakness could be extended moratoriums and restructured loans which reduced the need to make loan loss provisions for them. The end of this allowance was expected, in our view. On the downside, we expect NPLs to tick up as from Q2 21, driven by restructured ...
- Ayobami Omole
- Faith Mwangi
Kenya: New data show soaring digital payments
The Central Bank of Kenya (CBK) released digital transaction data for both banks and telcos in 2020, showing strong growth in digital payments and a decline in card transactions. In this report, we use the data to compare digital transactions in Kenya between July 2019-March 2020 (pre-pandemic) and April-December 2020. This allows us to assess the impact of the regulatory changes in March 2020 when fees on transactions were reduced and the upper limit on transactions increased. OUR KEY OBSERV...
- Faith Mwangi
Kenya banks: Profits fall by 29% in FY 20 on weak asset quality
According to data from the Central Bank of Kenya, total banking industry PBT fell by 29% yoy in FY 20. On a qoq basis, PBT fell by 19%, which we believe was related to accelerated cost of risk given weaker asset quality. This is not entirely unexpected considering that out of the banks we cover (which account for about 65% of total industry profit), four of them have issued profit warnings (signalling PAT in FY 20 will fall by more than 25% yoy). The banks that have issued profit warnings are...
- Faith Mwangi
Diamond Trust Bank: Q2 20 EPS declines by 76% yoy on higher tax charge...
DTB Group released Q2 20 results with EPS falling 76% yoy to KES1.76 from KES7.34 in Q2 19. On a cumulative H1 20 basis, EPS declined by 38% yoy to KES8.59 from KES13.89 in H1 19. Like other Kenyan banks, there was an uptick in loan loss provision with gross non-performing loans increasing 16% yoy. The bank’s management noted that they are concerned about the SME segment, which is under pressure from reduced economic activity. DTB Group also had an unexpected tax charge of 62% in Q2 20, up fr....
- Faith Mwangi
Kenya: Restructured loans escalate as Covid-19 bites; negative for ban...
According to the Treasury Cabinet Secretary, Kenya banks have restructured a total of KES360bn in loans as at June 2020. This represents 13% of total loans and is an increase from the 9.6% reported by the Central Bank of Kenya in April. Of these, personal household loans accounted for 53% of total loans restructured against a backdrop of continued job losses and pay cuts as well as shutting down of key employment sectors including tourism and horticulture from the Covid-19 outbreak. This is n...
- Faith Mwangi
Diamond Trust Bank: Higher loan loss provision dampen earnings; reiter...
DTB (Hold, TP KES154.00) released poor Q1 20 results, with EPS rising 4% yoy to KES6.83. Earnings were weak – pre-provision profit grew just 5% yoy on a marginal decline in the net interest margin and modest cost growth (+1% yoy). DTB has effectively slowed its expansion programme, with management now targeting alternative channels through which to grow market share, which should keen cost growth down. The key disappointment was a 52% yoy rise in loan loss provisions, following a 16% yoy rise....
- Faith Mwangi
Kenya's largest banks restructure 7% of loans – negative
According to the Central Bank of Kenya, the 7 largest banks in Kenyahave restructured loans amounting to KES176bn in April 2020 (7% of total loans as at January 2020)following the Covid-19 policy response that called forloan extension and restructuring. This is higher than the 3% in March. Excluding Standard Chartered Bank, we cover 6 out of the 7 largest banks in Kenya that include KCB, Equity, Co-op, NCBA (NIC bank and CBA group), ABSA Kenya (formerly Barclays) and DTB.We view the news as n...
- Faith Mwangi
Diamond Trust Bank: Weak results on low balance sheet growth and asset...
DTB Group (downgrade to Hold; target price KES154) has released its FY 19 results, with EPS up by just 1% yoy to KES24.27. Overall performance was weak in light of dismal performance on loan growth (+3% yoy), deposit growth (-1% yoy) and net interest margin (5.6% versus 6.2% in FY 18). Gross NPLs increased by 12% yoy to KES13.6bn, with the write-offs we had anticipated failing to materialise. Non-interest revenue was the positive outlier growing 12%yoy to KES 5.8bn on the back of increased fe...
- Gerald Muriuki
Diamond Trust Bank Kenya 1H19 Earnings Note
Diamond Trust Bank Kenya Plc (NSE: DTK) released 1H19 financial results reporting an increase of 11.0% y/y in Profit after Tax (PAT) to KES 3.9Bn. The performance was supported by Non-Interest Revenue (NIR) which grew 8.5% y/y to cushion income against the 7.5% y/y drop in Net Interest Income (NII). Consequently, operating income was down 4.0% y/y to KES 12.2Bn. Total operating expenses fell 14.4% y/y to KES 6.2Bn attributed to a 68.1% y/y decline in loan provisions to KES 534.2Mn. Deposits rose...
- Patrick Mumu
2019 Banking Sector Report
Executive Summary We recommend a HOLD on the banking sector. We note that the challenging business environment, occasioned by regulatory constraints, coupled with weakened asset quality, serve as impediments to growth. There still exists uncertainty with the interest rate cap ceiling. Our top pick in the sector is KCB Group with a Target Price of KES 62.52 and potential upside of 39.6% from the current market price. The bank is currently trading at the sector average of 1.2x P/B, despite having...
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