Following the release of the banks’ 3Q21 results, we analyze the financials of the listed banking sector which seem to indicate a recovery in economic activity. Data from KNBS indicated that the Kenyan economy recorded an impressive 10.1% growth in 2Q21 compared to a 4.7% decline over the similar period in 2020. From our estimates the 3Q21 economic figures are likely to be in line with the 1H21 growth, as the continued vaccine rollout has brought a renewed increase in economic activity.
Most lenders have reported a resumption in payments for their previously restructured loan books. Continued investment in alternative transaction channels continues to boost efficiency with banks such as KCB reporting that 98% of the transactions happened outside the physical branches. Increased usage of technology and alternative channels has enabled most lenders to reduce their branch network. NCBA seems to be the outlier as it continues to invest in the traditional brick and mortar.
FY21 Expectations
We expect end year interest income growth to be mainly driven by income from government securities. Private sector credit growth remains muted as government continues to crowd out the private sector and commercial banks’ risk appetite remains low. Initiatives such as the credit guarantee scheme and operationalization of KMRC should support riskier lending. Continued investment in alternative channels will, in the long term, drive improvements in cost to income ratio and increased fees and commission income as the pandemic has pushed customers to embracing cashless payments. We further expect an asset quality improvement leading to lesser provisioning and a better NPL coverage. We expect the banks to return to their pre-COVID dividend payments
