Top tier banks are optimistic of a smoother 2017 despite the turbulence that rocked the sector in 2016.
This is after a poor performance on their loan books last year which was worsened by the implementation of the interest rate cap in September 2016, slowing credit growth to six per cent year-to date as at October 2016, compared to 14 per cent a year earlier
A financial sector report by Renaissance Capital released on Monday shows banks are likely to focus on government securities which remain attractive, compared with the banks’ risk-adjusted yields on loans.
“At these levels, on a risk-adjusted basis, it is more attractive for the banks to lend to the government than to the private sector. Yields on government securities would have to drop by an average of 5.0 percentage points to give the banks greater incentive to lend to the real sector,” the report reads.
Top banks are expected to outperform smaller lenders, according to the analysts.
Those included in the Renaissance survey are KCB, Co-operative Bank and Equity Bank whose stocks at the Nairobi Securities Exchange oversold.
“We maintain our outperform ratings on Kenya Commercial Bank and Co-operative Bank of Kenya and our market perform rating on Equity Bank,” the report reads.
Outperform is when an investment is expected to perform better than the return generated by a particular index or the overall market.
Financial analyst Aly-Khan Satchu on Monday said: “As can be seen from the year-to-year date returns, the banks have borne the brunt of the sell-off at the securities exchange. They have been on a rebound in February from admittedly deeply oversold positions.”
Co-operative Bank yesterday said it targets to remain an outlier in the industry by maintaining a rather robust performance trend, even as peers struggled to maintain performance, with others issuing profit warnings.
The bank posted a net profit of Sh10.5 billion in the third quarter of 2016 compared to Sh8.6 billion in the corresponding period a year before, representing a 22.3 per cent growth rate.
“2016 was a difficult year for us and we project 2017 to present us with a similar if not more difficult environment,” group CEO Gideon Muriuki said. “We remain confident, all the same, that the transformation project we executed since 2014 has given our business the resilience and agility to withstand occasional shocks and still deliver on our strategic objectives for the year.”