Category Archives: NSE investor awareness

Kenya’s Top 10 Banks in 2020

Factoring in the absorption of their new NBK subsidiary, KCB’s numbers increased their lead at the top of Kenya’s bank table, with assets of Kshs 786 billion (~$7.86 billion). They are followed by Equity (Kshs 507 billion assets), which also increased its capital by almost Kshs 30 billion – probably muscle for its regional deals.

The only major change is with NCBA entering the top 3, after the assets and liabilities of NIC were transferred into CBA in October 2019. NCBA had bank assets of Kshs 465 billion and a pre-tax profit of Kshs 9.2 billion that was further reduced by exceptional merger costs of Kshs 1.1 billion.

The financial statements published today are a continuation of CBA’s and they show that timing of the transfer resulted in a “bargain purchase gain” of Kshs 4.1 billion.

Cooperative Bank is fourth (Kshs 449 billion assets), but may overhaul NCBA by the end the year, while fifth is Absa Kenya whose 2019 results were announced yesterday.

An interesting race mix is next with Standard Chartered, Stanbic Bank and Diamond Trust all closely bunched at about Kshs 300 billion of assets, and rounding out the top ten are I&M and Baroda Bank.

The year 2020 has started with a lot of economic uncertainty economic caused by the Corona virus pandemic with the possibility of strain at some banks. At their results briefing yesterday, Absa Kenya CEO Jeremy Awori said that such times also create opportunities for new partnerships as Absa’s growth plans include targeted acquisitions and disposals. Already Jamii Bora and Cooperative banks are in discussions about a buyout, while there are other small banks that were already in need of a boost.

Comparative Rankings (to last year):
1 (1 + 12) KCB. (+NBK)
2 (2) Equity.
3 (8 + 10) NCBA.
4 (3) Co-operative.
5 (4) Absa (Barclays) Kenya.
6 (5) Standard Chartered Kenya
7 (7) Stanbic Kenya.
8 (6) Diamond Trust.
9 (9) I & M.
10 (11) Baroda.

Absa Kenya 2019 Financial Results

Absa Kenya released its financial results for the year 2019 a year in which it completed the transition from Barclays to Absa, the third-largest financial services group in Africa.

Financial Performance: In 2019 assets grew by Kshs 50 billion to Kshs 374 billion (~$3.74 billion) which saw Absa Kenya ranked as the country’s fifth-largest bank. Deposits went up by 15% to Kshs 238 billion and loans by 10% to Kshs 194 billion. Income was up 6% over a year ago, and expenses were up 2%. Profit for the year was Kshs 12.2 billion before the exceptional item of the transitions, which continue to have an impact on their financial results, leaving a normalized after-tax profit of Kshs 8.5 billion (~$85 M).

Exceptional costs of Transition: Absa Kenya incurred an exceptional item cost of Kshs 1.5 billion, relating to the transitional services agreement with Barclays for the transition to Absa and which was completed in February 2020, ahead of schedule. During the year the bank completed the migration of over 300 technology systems including its core banking system, financial crimes altering, and card acquisition switch, that were previously housed at Barclays in the UK.

There were also the costs to rebrand 85 branches, over 200 ATM’s and 78 applications used across different platforms of the bank. The “Timiza” banking app now has 3.8 million customers and had lent over 20 billion by the end of 2019.

Investor Gains: For shareholders, the dividend for 2019 will be unchanged at Kshs 1.1 per share, comprising a final dividend of Kshs 0.9 that follows an earlier interim one of Kshs 0.2 per share. This represents a generous dividend payout of 80% of profits and currently, it is the best performing bank stock at the Nairobi Securities Exchange with a return of 39% since 2018.

Corona Virus cushion in 2020: As the world grapples with the impact of the Corona Virus outbreak, the bank has been one of the early champions of the industry reaction to enable Kenyan to continue their daily lives by encouraging customers to take up cashless transactions. Absa Kenya waived all money transfer charges between customer bank accounts and mobile wallets, including on Timiza and Pesalink while also increasing daily transition limits and also will also offer cash back of 0.3% for each use of Absa debit cards.

It also committed to ensuring that all its suppliers are paid within 14 days, with small and medium enterprise (SME) suppliers, invoicing amounts that are less than Kshs 1 million (~$10,000), to be paid within 7 days.

And in line with other banks in the country, under the Kenya Bankers Association, and guided by the Central Bank of Kenya, Absa Kenya has welcomed its customers experiencing financial strains as a result of the pandemic, to initiate discussions on restructuring of their personal and business loans, including the option of a repayment holiday of up to one year, and committed to render such decisions within seven days.

Barclays Kenya changes to Absa at the NSE

Barclays Bank of Kenya completed its transition journey to Absa this week with a confirmation of approval from the Central Bank of Kenya and the change over of its share ticker at the Nairobi Securities Exchange from BBK to Absa. 

This was the conclusion of a three-year journey that has seen Absa rebrand all Barclays operations across Africa under one name after Barclays had reduced its shareholding to under 15% and seen Barclays Africa renamed as the Absa Group.

Geoffrey Odundo the CEO of the Nairobi Securities Exchange (NSE) said that Barclays was one of their key listed banking stocks and its shareholders had seen good returns with Barclays being the best performing bank share last year. The bank had also been a key partner that has helped the NSE with product development and  market development. 

James Ndegwa, Chairman of Kenya’s Capital Markets Authority, said Barclays, which traced its history in the Country to 1916 when the National Bank of South Africa opened a branch in Mombasa, had become the first commercial bank to offer shares to the public in a 1986. He called on the bank to float more shares as he said the NSE had struggled to attract new listings, with daily trading dominated by a few companies.

Jeremy Awori CEO of Absa Bank Kenya said that, as part of one of Africa largest financial groups, they aimed to connect the dreams and aspirations of Kenyans with the financial resources to achieve these. Aside from enhancing financing for SME’s and offering the country’s lowest mortgage rate of 11.75%, he said that Absa which had recently launched the first vertical (debit & credit) cards in Kenya and received a new license for asset management, would soon launch a chatbot, and an online toolkit for small business owners.

Other guests at the event that was held at the Nairobi Securities Exchange included Daniel Mminele, the new CEO of Absa Group, Peter Matlare, the Deputy CEO of Absa Group, and Charles Muchene, the Board Chairman of Absa Bank Kenya PLC.

On it’s debut, Absa Bank Kenya traded 126,800 shares to close at Kshs 13.25.

Nairobi investment tips from Genghis for 2020

Genghis Capital has launched its 2020 investment playbook with the theme “harnessing value” after a year in which the Nairobi Securities Exchange (NSE) all share-index had gained 18% compared to a loss of 18% in 2018. 

Top gaining shares in 2019 were led by Sameer Africa which rose 86%, then Equity Group 53%, Longhorn Publishers 46%, KCB 44% and Safaricom 42%. Shares on the bottom side were Kenya Airways which lost 77%, then Uchumi Supermarkets -63% and Mumias Sugar -43%. 

The playbook has a summary of 2019 whose gains were largely due to Safaricom and bank shares, and some of the year’s top deals which included the bank mergers of CBA & NIC and KCB & NBK. Other highlights of the year were the launch of derivative futures and the NSE Ibuka program which has uncovered some promising companies. It also notes the suspension of Mumias which joined Deacons and Athi River Mining as other shares in limbo. 

Outlook for 2020: The report includes a macroeconomic outlook for the country this year during which they expect aggressive domestic borrowing by the government, and the Kenya shilling to range between 100 – 104 against the US dollar. They have also factored in the possibility of another Kenya political referendum happening during 2020. 

Going forward, they expect that bank shares will do well, but that other equities will struggle this year. They look forward to the opportunity that derivatives have brought of diversification with lower trading costs but note that there is a need to have a market-maker to resolve some liquidity difficulties of trading derivatives.

They also note that the main shareholders at Unga and Express may try again to delist their company shares and take advantage of a new rule that reduces the takeover threshold requirement from being approval by 90% of shareholders to just 50%. Genghis also expect that the nationalization of Kenya Airways will be completed in 2020.  

Genghis picks and recommendations:

  • Momentum shares are Equity, EABL, KCB, Safaricom.
  • Income Shares are KCB, Barclays, Co-op Bank, Stanchart, KenGen.
  • Value shares are EABL KenGen, Kenya Re.
  • Buy (expect gains of more than 15%) EABL, Kengen, Kenya Re, KCB, NCBA, and Diamond Trust.
  • Hold (expect changes of between -15% to +14% over the next 12 months) Safaricom, Standard Chartered, Barclays, Equity, Cooperative, Stanbic, and I&M.  
  • Sell Recommendation: N/A

See last year’s picks by Genghis.

Absa AFM Index shows African countries improve in investor readiness

The 2019 Africa Financial Markets Index report that was released in October, found that several countries had closed gaps to perennial leader South Africa, improving on several measures such as financial transparency, local investor capacity, legal protection and macroeconomic opportunity.

Showing just how much African countries have made progress, while only six had scored better than 50 (out of the maximum 100) in the first index in 2017, last year ten countries did that, and in 2019, thirteen countries scored better than 50 points.

The ranking of countries in the Absa 2019 Africa Financial Markets Index and some of the market/investor activities highlighted in the report include:

South Africa (and also number 1 in the last index): Is the top country in 5 pillars after it regained the lead from Kenya on the foreign exchange one. The JSE also launched a Nasdaq clearing platform.

2 (4) Mauritius: Has diversified its economy from sugar and textiles to tourism and financial services. It leads the continent in pension assets under management of $4,331 per capita. It has also established a derivatives trading platform.

3 (3)Kenya: More detail on Kenya’s ranking and investor initiatives here.

4 (6) Namibia: Bank Windhoek issued a green bond in the year. One concern is that the country lacks sufficient financial markets experts.

5 (2) Botswana: The country’s exchange has large market capitalization, but this is mostly due to dual-listed mining companies that have low trading volumes. They also formed a financial stability council to coordinate different regulators and plan to launch a mobile phone bond product like Kenya’s M-Akiba.

6 (5) Nigeria: Showed big improvement as they have liberalized their exchange rate and built up reserves. Pension funds were freed up to invest in infrastructure, bond, and Sukuk funds.

7 (15) Tanzania: Created a tax ombudsman and also repealed an amendment that had made it illegal to publish statistics that were not approved by the Government.

8 (8) Zambia: Improved budget reporting. But reserves dropped due to high interest payments on external debt as mining production has declined.

9 (11) Rwanda: Share of exports grew, and an agreement was reached with the IMF to accelerate urbanization and financial markets.

10 (10) Uganda: Market trading activity dropped from $25 million to  $11 million and one of the largest stockbrokers opted not to renew their operating license.

Others were:

11 (16) Egypt: Topped the pillar of macro-economic opportunity due to export gains and declines in non-performing loans. Moody’s also upgraded their banking system ratings.

12 (9) Morocco: Now publishes monetary policy announcements and data releases. Has an active financial market but limited availability of financial products. It plans to launch an agricultural commodities exchange.

13 (7) Ghana: Is seeking to cap foreign holdings of government debt. The Bank of Ghana merged small banks and revoked licenses of others that did not meet minimum capital requirements.

16 (13) Ivory Coast: Enabled more-accessible budget reporting and plans to launch an agricultural commodities exchange for 2020.

20 (20) Ethiopia: Announced plans to launch a stock exchange for 2020, with aims to have significant privatization events including the listing of telecommunication companies. Local banks are also adopting international financial reporting standards. But the requirement that their pension funds can only invest in government securities is considered an impediment.

Also on the index are Seychelles (ranked 14), Mozambique (15), Angola (17), Senegal (18) and Cameroon (19). The 2019 AFM Index report was produced by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) and it can be downloaded here.